Shenzhen-Hong Kong stock link approved

Based on the closing stock prices on August 16, foreign investors will have access to more than 860 stocks in Shenzhen, compared with about 570 in Shanghai through the existing link.

The benchmark Shanghai Composite Index fell 0.2 percent, while the Shenzhen index added 0.3 percent and Hong Kong advanced 0.2 percent by mid-morning Wednesday. Approximately 75 percent of Shenzhen companies are private/non-gov’t affiliated versus just 40 percent on the Shanghai.

Late on Tuesday Hong Kong and mainland China officials announced a fresh program to the connect Hong Kong’s internationally accessible stock market with the southern Shenzhen exchange. But authorities didn’t reveal more details.

Li said the new link would be launched by Christmas if not sooner, and the Hong Kong bourse expected Shenzhen trading to be subject to the same tax treatment in China as under the Shanghai connect scheme.

Even then, the approval of the trading link “ought to assuage investors that financial reforms are still very much on the agenda despite some recent tightening of the capital account”, said Sean Darby, chief global equity strategist at Jefferies in Hong Kong.

A similar measure linking Hong Kong with the mainland’s main exchange in Shanghai was launched in 2014. Now he hopes a stock market link between Hong Kong and Shenzhen will bring him rewards.

But the $3.2 trillion Shenzhen market, already the worlds seventh largest, could prove attractive to foreign investors because it is where fast-growing Chinese companies that operate in sectors such as technology, pharmaceuticals and clean energy often list, according to the Wall Street Journal.

China A-shares or mainland, renminbi-denominated stocks were previously restricted to domestic investors.

Though the actual launch is unlikely to trigger an avalanche of funds into China’s stock markets – given relatively expensive valuations and a slowing economy – mainland Chinese investors will likely cheer another option to diversify away from weak onshore stock markets. Almost 50 stocks surged by the daily trading limit of 10 percent.

In denying China’s inclusion in June, MSCI – whose emerging-market index is tracked by investors with about US$1.5 trillion in assets – cited a need for improvements in market access.

Hong Kong serves as an worldwide financial center and major offshore yuan hub, and the internationalization of the yuan as a global investment currency will reinforce the position.

“In terms of my portfolio, I haven’t done anything around Connect yet as A-shares are underperforming and we also have a view that the Chinese currency may depreciate”, said Arthur Kwong, head of Asia-Pacific equities at BNP Paribas Investment Partners. It was in fifth place among all currencies for use in worldwide payments and foreign exchange trading.

With subscribers to more lucrative, data-heavy 4G service accounting for less than a third of China Unicom’s customer base, analysts expect both revenue and costs to grow next year as it seeks to catch up with bigger rival China Mobile Ltd and smaller China Telecom Corp Ltd in building its 4G network.