China Stock Turmoil 2015

Shenzhen stock connect won’t be launched this year, says HKEx chief

Charles Li says three to four months will be needed to prepare for launch of cross-border stock-trading scheme

PUBLISHED : Tuesday, 17 November, 2015, 8:37pm
UPDATED : Tuesday, 17 November, 2015, 8:37pm

The Shenzhen-Hong Kong stock connect scheme will not be launched this year, Hong Kong Exchanges and Clearing (HKEx) chief executive Charles Li Xiaojia said yesterday.

The cross-border stock-trading scheme was initially expected to be launched by the end of this year but the stock market turmoil on the mainland in the middle of the year led brokers to expect a delay. Li’s remarks, at a ceremony in Hong Kong marking the first anniversary of the Shanghai-Hong Kong Stock Connect scheme, were the first time an exchange official had confirmed the Shenzhen link would not be launched this year. Neither HKEx nor mainland officials have announced a launch date.

“It would need three to four months to prepare the launch of the stock connect between Hong Kong and Shenzhen,” Li said. “As such, it’s too late for this year but it will happen sometime next year.”

It’s too late for this year but it will happen sometime next year
Charles Li, HKEx CEO

Li also said enhancements to the Shanghai scheme, such as increasing quotas, expanding the range of stocks included and other rule changes would be introduced at the same time as the Shenzhen link.

A China Securities Regulatory Commission vice-chairman, Fang Xinghai, said on the mainland regulator’s website yesterday that plans were afoot to expand trading quotas and the range of stocks covered by the Shanghai-Hong Kong Stock Connect scheme, increase cross-border regulatory and law enforcement cooperation and also push forward with the mutual recognition of funds and the Shenzhen link.

The Shanghai-Hong Kong Stock Connect scheme was launched on November 17 last year. It broke new ground by allowing international retail investors to trade the mainland market via Hong Kong brokers, while also letting mainland investors with 500,000 yuan trade in Hong Kong stocks via mainland brokers.

However, turnover has been disappointing. The average daily turnover of northbound investment flows – international investors buying Shanghai A shares via a Hong Kong broker – stands at just 6.7 billion yuan (HK$8.13 billion), representing about 0.6 per cent of Shanghai’s daily market turnover.

The average daily southbound turnover stands at HK$3.3 billion, representing less than 1 per cent of local turnover.

Li played down the low turnover. “The stock connect is like building a bridge between Hong Kong and Shanghai,” he said. “This is for use for 10 years, 20 years and longer. People who do not choose to walk on the bridge today may walk on it tomorrow.”

HKEx chairman Chow Chung-kong said the Shanghai link had proved its resilience by working smoothly as the market turmoil peaked on the mainland.

“On August 24, when the Shanghai market dropped by 8.5 per cent, the Shanghai-Hong Kong Stock Connect still worked smoothly,” he said. “International investors bought 8 billion yuan more stocks than they sold stocks. This prove the scheme has added new money and new investors to the mainland market.”

Broker Christopher Cheung Wah-fung, who represents the financial services sector in Hong Kong’s legislature, said he expected the Shenzhen-Hong Kong link would be launched in the first quarter of next year.

Additional reporting by Jing Yang