Shenzhen-Hong Kong stock trading link operational by Christmas, says HKEX chief

State Council gives green light to new scheme. Chinese Premier Li Keqiang hails announcement as showing ‘China’s capital market is becoming more market-oriented and international. This is a very positive move’

PUBLISHED : Tuesday, 16 August, 2016, 5:45pm
UPDATED : Wednesday, 17 August, 2016, 9:19am

The much-anticipated share-trading link being created between the Hong Kong and Shenzhen stock markets should be up and running within four months, according to officials at Hong Kong Exchanges and Clearing.

Premier Li Keqiang announced earlier on Tuesday that the basic preparation work for the new scheme was ready, adding the State Council has already approved the necessary documentation.

The premier did not give any likely launch date, but at a news conference on Tuesday evening, HKEX chief executive Charles Li Xiaojia said: “We hope we can launch the Shenzhen-Hong Kong Stock Connect before Christmas, and it could be in three months. But the market still needs preparation and regulatory approval.”

Officials from Hong Kong’s financial regulator the Securities and Futures Commission and the China Securities Regulatory Commission also said there will be no total quotas on stock trading using the planned new link, while the existing total quotas for the Shanghai-Hong Kong Stock Connect will also be scrapped.

The Shenzhen-Hong Kong link was initially planned to launch by the end of last year, but that was postponed due to the mainland’s volatile stock market.

The scheme is the second cross border stock trading scheme between China and Hong Kong, after Shanghai, while London and Singapore are also trying to establish similar systems.

The premier’s statement marked the first time a senior Chinese official had confirmed the country’s second cross-border stock trading scheme had been given cabinet approval, which brokers read as meaning the long-awaited scheme will be launched soon.

Some believe the announcement of the approval came as China now wants to underline its commitment to opening its capital market, before the high level G20 meeting to be host in China in September.

“The basic preparation work for the stock connect scheme between Hong Kong and Shenzhen is ready,” the premier said.

“The State Council has already approved the necessary documentation of the plan to introduce the Shenzhen–Hong Kong Stock Connect.

“This shows China’s capital market is becoming more market-oriented and international. This is a very positive move,” he said.

The premier also said the introduction of the Shenzhen-Hong Kong link will allow investors to participate in the economic growth of both Hong Kong and the mainland, and bring the financial markets of each closer together.

He said carrying out reforms and opening up the mainland capital markets to the outside world forms the major part of the country’s economic blueprint in future.

HKEX’s Charles Li said there will be no total quota for the new connect scheme while the total quota of a combined 550 billion yuan for the Shanghai–Hong Kong link will also be removed.

He said there will be 417 Hong Kong stocks traded in Shenzhen, more than the 318 HK stocks currently traded within its link with Shanghai.

Some Nasdaq-style ChiNext stocks will be included, but initially only for professional investors, he added.

The Shenzhen-Hong Kong Stock Connect scheme, he said, will allow international investors who have an account with any stockbroker registered with HKEX to trade 880 Shenzhen stocks under a daily quota of 13 billion yuan, the same as the Shanghai-HK Connect.

Mainlanders will also be able to trade Hong Kong stocks through stockbrokers via Shenzhen Stock Exchange under a daily quota at 10.5 billion yuan, again the same as Shanghai.

Hong Kong Investment Funds Association chief executive Sally Wong welcomed the premier’s statement, adding it looked forward to the official launch of the link.

“We believe the new Shenzhen Stock Connect will be complementary to the Shanghai link, as the two markets offer different opportunities,” she said.

The new Shenzhen Stock Connect will be complementary to the Shanghai link, as the two markets offer different opportunities
Sally Wong, HKIFA chief executive

“The Shanghai market has more old-economy companies that come from traditional industries and more large caps, whereas Shenzhen has more new-economy companies offering access to small and mid cap growth stocks.”

A recent survey of HKIFA members showed 90 per cent considered the Shenzhen link as being the biggest influence on business going forward.

Helen Wong, chief executive of greater China of HSBC, said: “China’s decision to launch the Shenzhen-Hong Kong Stock Connect demonstrates the country’s continuing commitment to liberalising its financial sector and opening up its capital markets to global investors.

“This link should provide investors around the world with a convenient way to access China’s new generation of private sector companies listed in Shenzhen, including an array of innovative internet and technology players based in the Pearl River Delta.”

Credit Suisse Asia strategist Chen Li said that fund inflow southbound will continue in the long

term despite potential profit taking in the first one or two weeks after Shenzhen and Hong Kong stock connect is officially launched.

Rose Lee, vice-chairman and chief executive of Hang Seng Bank, said the new stock link’s approval represents “a new milestone in the development of the securities markets in mainland China and Hong Kong, and a big stride forward in the internationalisation of the renminbi”.