China’s State Council has approved the launch of the long-awaited “Stock Connect” trading link between Shenzhen and Hong Kong stock markets, almost two years after a similar link with Shanghai.
Advertisement
It also scrapped overall quota limits for an earlier scheme linking Hong Kong to the Shanghai stock exchange, and said there were no overall limits for the new scheme – a restriction that has been a sticking point for big institutional investors on market access issues.
“Foreign capital will have easier access to China’s domestic market, and Hong Kong investors can benefit even if they don’t buy A shares as the capital inflow from the mainland will push up prices of Hong Kong’s small and mid-cap stocks”, he said.
The State Council has given the green light to a long-awaited plan to connect a second mainland stock exchange with Hong Kong’s.
The CSI300 index rose 0.5 percent, to 3,391.40 points at the end of the morning session, while the Shanghai Composite Index gained 0.4 percent, to 3,122.16 points.
Investors on the two sides will then be able to trade selected stocks on each other’s exchanges.
There will be no aggregate quota under Shenzhen-Hong Kong Stock Connect, according to the regulators.
About a third of the blue-chip Hang Seng Index’s gains Thursday were due to one stock-Tencent Holdings-with the stock ending up 5.2%, after reporting late Wednesday a 47% rise in second-quarter net profit.
The China Securities Regulatory Commission (CSRC) said Tuesday in a statement that it signed a joint announcement with the Hong Kong Securities and Futures Commission on approving the establishment of the Shenzhen-HK Stock Connect mechanism.
The Hang Seng index in Hong Kong was unchanged at 22,913.78 points.
Shenzhen is Asia’s busiest exchange, with monthly turnover topping $1-trillion.
The link’s approval means “the Chinese government is really delivering on its promise to open up its markets”, said Sandy Mehta, chief executive officer of Hong Kong-based advisory firm Value Investment Principals Ltd. In Hong Kong, it will help deepen the financial cooperation between them and consolidate and boost Hong Kong’s position as an worldwide financial center, he said.
Advertisement
It also represents a further step in a trend towards the liberalisation of mainland Chinese markets and will be a key test of global appetite for Chinese shares. It will benefit Hong Kong’s stocks, which are undervalued, compared with those in Shenzhen, said Dennis Huang, senior real estate and financial commentator in Hong Kong. For example, the daily quota for both northbound and southbound programmes will remain capped at RMB13 billion (S$2.64 billion) and RMB10.5 billion respectively, while the RMB500,000 threshold for retail investors to participate southbound, remains. The Shenzhen Stock Exchange includes the shares of smaller technology and consumer-oriented companies, which are not popular with worldwide investors. The city, which borders Hong Kong, led China’s export boom that began in the 1980s.
