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Muted Shenzhen Composite Index Reaction to Connect Approval
Additionally, the Hang Seng China AH Premium Index has dropped by 20 percentage points to 125, from its peak of 145 at the beginning of the year.
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Most sectors rose, with IT stocks, which will directly benefit from the Connect, surging over 4 percent.
The SZHKSC’s approval is a well-anticipated event in HSBC’s view – one that investors are already positioned for, says Sun, given how southbound inflows through the Shanghai-HK Stock Connect (SZHKSC) have amounted to nearly RMB100 billion in the year to date.
The market was also bolstered by investors seeking to front-run expected fresh inflows from the upcoming Shenzhen-Hong Kong Stock Connect.
Mainland China’s second stock exchange, in the southern city of Shenzhen, was due to follow a year ago, but the launch was delayed by a market rout.
Late Tuesday, China gave the green light to a stock-trading link between Hong Kong and the tech-heavy Shenzhen exchanges, while scrapping important limits on how much foreigners can invest in the country’s stocks in an effort to entice global investors.
Here we answer some questions based on information released by the two stock exchanges about what the Shenzhen stock connect means for China and for ordinary investors, how it would be regulated, and why you may want to pay attention.
About one third of the blue-chip Hang Seng Index’s gains Thursday were due to one stock-Tencent Holdings Ltd. -which jumped 5.9% Thursday, after reporting a 47% on-year rise in net profit for the second quarter at the close of market Wednesday.
“The main mover [of markets] is the dollar falling”, said Tareck Horchani, deputy head of Asian Pacific sales trading at Saxo Capital Markets.
Mainland Chinese investors have sought out Hong Kong shares via the Shanghai-Hong Kong connect scheme, launched in late 2014, in a bid to buy non-yuan denominated assets amid fears over a weakening currency. That’s less than 2 percent of the combined value of publicly traded stocks that make up the Shenzhen Component Index.
The move helped boost sentiment in Hong Kong on Wednesday, but analysts said the influx of foreign money into Chinese stocks is likely to be modest. The Shenzhen stock connect will keep the same daily trading limits as those for the Shanghai system – 13 billion yuan on investment from Hong Kong to Shenzhen and 10.5 billion yuan the other way round. China hasn’t announced a date, but the trading link is expected in 2016.
Some gains may await the Hong Kong market with the imminent launch of the SZHKSC. Markets “have been selling off, they have been going up”. The Shanghai Hong Kong stock connect was subject to an aggregate quota of 250 billion yuan on the southbound channel and a quota of 300 billion yuan on the northbound one.
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Both Shenzhen and Shanghai stocks have fallen around 12 percent so far this year, while an index measuring the performance of Asian shares is up almost 10 percent. The Hong Kong-traded shares of GF Securities Co. fell 3.7% and Citic Securities Co.