Shenzhen-Hong Kong Stock Connect may help push A shares closer to MSCI

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Hong Kong Exchanges and Clearing chief executive Charles Li speaks during a press conference on Shenzhen-Hong Kong Stock Connect on Tuesday. China's Cabinet approved the initiative that will give foreign investors more access to Chinese stocks by linking exchanges in Hong Kong and Shenzhen. Photo: AP

Published: 11:52am, 17 Aug 2016Updated: 10:32pm, 17 Aug 2016

The launch of Shenzhen-Hong Kong Stock Connect may increase the likelihood of index compiler MSCI adding mainland A shares to its influential benchmark index, which could attract billions of dollars of fund flows into the Chinese stock market.

But it may not be enough to tip the balance if restrictions are still in place preventing global investors from pulling money out of China or issuing Chinese financial derivatives overseas, according to analysts.

Chinese Premier Li Keqiang said in a statement on Tuesday that the State Council has approved the Shenzhen-Hong Kong Stock Connect and “everything is basically ready” for the launch.

Hong Kong Exchanges and Clearing chief executive Charles Li Xiaojia said on Tuesday night that the new cross border scheme, which will allow international investors to trade 880 Shenzhen listed stocks and mainlanders to trade 417 Hong Kong stocks, will begin operation by Christmas this year.

HKEX’s Li said the launch of the Shenzhen and Hong Kong Stock Connect would definitely increase chances for A shares to be added to the MSCI index when the index complier conducts its next review.

“Since one of the major considerations of the MSCI is about market access, the new cross border scheme between Hong Kong and Shenzhen is going to remove this hurdle,” he said.