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November 26, 2016

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Launch date for Shenzhen-HK link

A LONG-AWAITED trading link between Shenzhen and Hong Kong will open on December 5, China’s securities regulator said yesterday, part of efforts to speed up China’s financial reform while giving global investors greater access to Asia’s third-largest equity market.

The new stock scheme, announced by the China Securities Regulatory Commission and Hong Kong’s Securities and Futures Commission after close of trade, will allow international investors to trade 881 Shenzhen-listed tech-heavy stocks, while investors on the Chinese mainland will be allowed to trade 417 Hong Kong stocks.

“The expanded trading link will further strengthen mutual access between the mainland and Hong Kong stock markets,” a joint statement said. “Similar to the arrangements for Shanghai-Hong Kong Stock Connect, the two regulators have established mechanisms to protect the integrity of both markets under Shenzhen-Hong Kong Stock Connect.”

Hong Kong’s Hang Seng Index closed at a two-week high yesterday, partly aided by steady money inflows via the Shanghai-Hong Kong connect as the market sensed the approach of its sister link. Indexes in Shanghai and Shenzhen both rose more than 0.6 percent.

The launch of the scheme has been anticipated since the opening of the Shanghai-Hong Kong connect in November 2014 but the idea was set aside after the stock market crash in the summer of 2015 wiped out US$5 trillion worth of shares.

However, the official start date had been widely expected by brokers after Hong Kong Exchanges and Clearing chief executive Charles Li said in October that the Shenzhen-Hong Kong connect would start trading on a Monday after mid-November.

The trading, clearing and other rules, the daily quota mechanism and other regulatory and operational arrangements have been finalized, according to yesterday’s statement.

There will be no total quota for the new scheme, analysts said. The total quota of a combined 550 billion yuan (US$79.5 billion) for the Shanghai-Hong Kong link was removed in August, when Premier Li Keqiang said that the State Council had approved the new connect.

Market insiders foresee more active trading by mainland investors from Shenzhen with the cancelation of the quota system, as growing diversified investment demand amid a depreciating yuan will drive the trend of buying Hong Kong stocks.

Gao Ting, chief China strategist at UBS, predicts the total trading volume heading to Hong Kong at 160 billion yuan through both links next year, 100 billion of it purchased by institutional buyers, mainly insurers, for the purpose of long-term asset allocation.

“For foreign investors,” Gao said, “trading activity north to Shenzhen could surpass that to Shanghai after the launch, as they may favor Shenzhen’s tech-heavy shares that bring higher growth. But we won’t see a significant surge of trading in the short term based on that, since fundamental concerns such as cooling economic growth and shares’ relatively high price-earnings ratio is still likely to weigh on the sentiment of foreign buyers.”


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