China gives the nod for Shenzhen-Hong Kong Stock Connect to commence on December 5

China will commence the Shenzhen-Hong Kong Stock Connect programme on December 5, in a much-anticipated liberalisation of the Chinese financial system that gives global capital greater access to Asia’s largest and third-largest equity markets.

The programme allows overseas investors to trade in 881 stocks on the Shenzhen Stock Exchange, while giving mainland Chinese brokers access to execute transactions in 417 stocks in Hong Kong, according to a joint announcement by the China Securities Regulatory Commission and Hong Kong’s Securities & Futures Commission.

“The expanded trading link will further strengthen mutual access between the Mainland and Hong Kong stock markets,” SFC chairman Carlson Tong 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.”

The latest move, coming on the second anniversary of the first Shanghai-Hong Kong Stock Connect programme, is another step in China’s strategy to liberalise its financial markets. Under that first scheme, international investors got a taste of trading in about 600 of Shanghai’s A shares, while the city’s brokers got access to 318 Hong Kong stocks for mainland investors.

A daily quota will be imposed on the Shenzhen link on international investors who can trade up to 13 billion yuan a day of A-shares in Shenzhen stocks, while mainland investors can trade up to 10.5 billion yuan a day of Hong Kong stocks.

There will be no total quota for the new scheme. The total quota of a combined 550 billion yuan (HK$643.9 billion) for the Shanghai-Hong Kong link was removed in August when Premier Li Keqiang announced the State Council had approved the new connect.

The Shenzhen-Hong Kong link was initially expected to launch last year but the mainland stock market rout last summer led to a delay.

The official start date had been widely expected by brokers, after Hong Kong Exchanges and Clearing chief executive Charles Li Xiaojia last month had said the launch would be on a Monday after mid-November.

Christopher Cheung Wah-fung, the lawmaker for Hong Kong’s financial services sector, said the Shenzhen-Hong Kong Stock Connect would attract investors who like to trade in good quality, smaller sized companies.

“Many Shenzhen listed companies are start-ups or innovative firms which have high growth potential. Likewise, the new connect has added in almost 100 smaller size Hong Kong stocks for mainland investors to trade,” Cheung said.

“Another cross border trading scheme will boost Hong Kong stock market turnover by attracting more mainland investors to trade Hong Kong stocks,” he said.

Cheung hopes the next stock connect to be launched will be for initial public offerings (IPO) to allow international investors to subscribe to newly listed A-shares, while mainlanders could subscribe to IPO in Hong Kong.

“An IPO connect would widen the investor pool for new issuances in Hong Kong, Shanghai and Shenzhen. It would also enhance Hong Kong’s attractiveness for international firms to list here, and attract more mainland investors,” he said.