Shenzhen-Hong Kong stock connect set to be delayed for longer due to market volatility
Scheme would represent further capital account opening for mainland China
The plan to connect the Hong Kong and Shenzhen stock exchanges looks set to be delayed until at least the second half of this year, with the launch of the new cross-border scheme not possible until volatile markets turned stable, the heads of the local bourse said on Thursday.
“We have prepared well to launch the Hong Kong and Shenzhen stock connect for investors to conduct cross-border trading between the two markets. This is definitely a scheme which will be launched,” Hong Kong Exchanges and Clearing chief executive Charles Li Xiaojia said.
“However, we could only launch such a new scheme when the markets turn more stable. Investors need to be patient.”
Li was speaking after co-hosting a ceremony to mark the first trading day of the Year of the Monkey with HKEx chairman Chow Chung-kong, who echoed his comments.
“We need to wait for the market to turn stable before we can launch the stock connect scheme between Hong Kong and Shenzhen,” Chow said. “Any new schemes would only perform the best in a stable market.”
The Hong Kong market’s benchmark Hang Seng Index fell more than 800 points at one stage on Thursday, or about 5 per cent, in the worst market slump on the first trading day of a Lunar New Year since 1994.
On the first day of trading following the Lunar New Year last year Chow had predicted the Shenzhen-Hong Kong stock connect would be launched by the end of last year, but that plan was delayed after the mainland China market rout last summer that wiped US$4 trillion off its market capitalisation.
Christopher Cheung Wah-fung, the legislator representing the financial sector, said the exchange heads’ comments showed the Shenzhen-Hong Kong stock connect would be delayed until at least the second half of this year.
“According to the comments of the top bosses of the HKEx, it is highly likely that the new Shenzhen-Hong Kong stock connect will have little chance to be launched in the first half of this year,” Cheung said. “It would be a shame as the new connect scheme is likely to be popular among Hong Kong and international investors as many Shenzhen stocks have growth potential and they are familiar to Hong Kong investors.”
Cheung said he hoped the mainland would launch the scheme when Hong Kong market stabilised and he would like to see the exchange the Hong Kong government continue to fight for the launch of the scheme.
It would represent a new leg and new capital account opening for mainland China after the launch of the Shanghai-Hong Kong stock connect in November 2014. That scheme allows international investors to trade up to 13 billion yuan of Shanghai-listed A shares a day via Hong Kong brokers, while mainlanders can trade up to 10.5 billion yuan of Hong Kong stocks via a mainland brokers a day.
A Hong Kong Investment Funds Association survey found the Shenzhen-Hong Kong stock connect topped the wish list of international fund houses for market reform in China.
Chow said he was not surprised by the sharp fall on the first trading day of the Year of the Monkey.
“It was not a surprise to see the stock market fall this morning as the regional and global stock markets have been down during the Lunar New Year,” Chow said.
He said the markets had been worried about the “three Cs” – commodities, currencies and China.
“Commodities prices, particularly the oil price, have gone down sharply,” Chow said. “The currency exchange rate changes have led to capital outflow. China, which is having an increasing influence on the worldwide economy, is having economic slowdown. These have hurt market sentiment.
“But Hong Kong has the experience to handle these volatilities. The market has been trading in an orderly manner and we do not have problems with the market movement. We believe market turnover and new listing will return to normal when the market stabilises.”
Li said HKEx would introduced more derivatives and commodities products for investors to manage their risks.
“Investors will need to be cautious and they will need to gear up their risk management measures to safeguard their investment portfolio amid a volatile market,” he said.