Stock Connect

Stock connect debut will link mainland China’s southern bourse Shenzhen and Hong Kong for first time

Monday’s kick-off of the Shenzhen-Hong Kong share trading link is expected to bolster market turnover and sentiment

PUBLISHED : Sunday, 04 December, 2016, 8:36pm
UPDATED : Monday, 05 December, 2016, 9:40am

The long-awaited Shenzhen and Hong Kong Stock Connect is poised to go live on Monday, a landmark event which brokers expect will improve market turnover and investor sentiment.

Benny Mau Ying-yuen, chairman of Hong Kong Securities Association, expects upbeat trading on Monday in Hong Kong and Shenzhen, reversing Friday losses.

‘The Shenzhen-Hong Kong Stock Connect has been long-awaited by brokers and investors and the debut of the new cross border scheme is expected to boost market sentiment. The stock markets in Hong Kong and Shenzhen should both improve on Monday,” Mau said.

At the kickoff to trade on Monday morning, the Shenzhen-Hong Kong Stock Connect will allow international investors to trade in 881 Shenzhen-listed stocks up to quota of 13 billion yuan a day, while mainlanders will be able to trade 417 Hong Kong-listed stocks, up to a daily quota of 10.5 billion yuan.

The new scheme was initially expected to be launched at the end of last year, but was postponed after the mainland stock markets suffered a harsh sell-off.

The scheme follows the launch of the Shanghai-Hong Kong Stock Connect in November 2014, which allows international investors to trade in 568 Shanghai-listed A shares, and 315 Hong Kong stocks.

Louis Tse Ming-kwong, a director of VC Brokerage, also believes the new connect scheme will boost sentiment this week.

“The stock markets in Hong Kong and Shenzhen as well as Shanghai weredown last week due to worries over the Italy referendum on Sunday as well as a US interest rate rise in mid-December. The markets now trade at a relatively cheap level and investors may take the launch of the new stock connect schemes as an excuse to buy,” Tse said.

“The new connect is expected to benefit smaller sized stocks listed in Shenzhen and Hong Kong,” Tse said.

Hong Kong stocks posted their worst daily drop in nearly three weeks on Friday as investors became risk adverse amid uncertainty about the outcome of Italy’s weekend referendum, which could elevate political risks in Europe. Macau casino stocks were under heavy selling pressure after the Macau government proposed new measures to curb money laundering.

The Hang Seng Index dropped 1.4 per cent or 313.41 points to close at 22,564.82 on Friday while the large-cap CSI300 Index - which tracks large companies listed in Shanghai and Shenzhen - lost 1 per cent or 36.09 points to 3,528.95 on Friday.

Joseph Tong Tang, the chairman of Morton Securities, said the launch of the new cross-border trading schemes would bolster liquidity in both markets.

“The turnover of the Hong Kong stock market should benefit from the inflow of mainlanders buying Hong Kong stocks via the new connect scheme.

“As we can see, turnover in Hong Kong increased to HK$81 billion on Friday, up from about HK$60 billion in previous months. This shows the new connect scheme has had a positive impact,” Tong said. “The yuan has continued to depreciate, leading mainlanders to buy Hong Kong stocks as they can gain from the valuation exchange.”

Brett McGonegal, chief executive of Capital Link International, however is not so optimistic.

“The markets are about to correct and the next couple weeks will see some pressure. I don’t think the Shenzhen-Hong Kong Stock Connect will entice any allocation that would not be already directed at China,” McGonegal said.

“Unfortunately it will be more of a victory in sentimental terms not in asset allocation and positive market performance,” McGonegal said.

He believes worries over the trade policy of US President-elect Donald Trump will eventually subside, enticing new investment into China stock markets, but the rebound won’t happen in the next few weeks.