Market rout may speed up Shenzhen-Hong Kong stock connect link
Shenzhen market is likely to see more long-term overseas investors with expansion of the scheme
Some people are asking if the Shenzhen-Hong Kong stock link will be delayed amid a decline in the mainland Chinese stock markets over the past three weeks after rallying to a seven-year peak.
In fact, the steep sell-off may well lead to an acceleration in the link between the two exchanges.
There are many reasons behind the slump in Shanghai and Shenzhen, which have retreated 26.9 per cent and 35 per cent, respectively, since the June 12 highs, landing them firmly in bear market territory.
Those reasons range from aggressive short-selling to tightening of margin finance and market manipulation by the authorities in Beijing.
None of these factors is related to the stock market connect between Hong Kong and Shanghai. A delay in the Shenzhen-Hong Kong stock connect this year would not stop the markets from falling.
Speeding up the link would likely help.
If we looks at the trading data of the Shanghai-Hong Kong stock market connect, we see a stable rising trend in foreign investors in the Shanghai A-share market.
A delay in the Shenzhen-Hong Kong stock connect this year would not stop the markets from falling
The average daily northbound turnover stood at about 5 billion yuan in January and February, climbing to 6.25 billion yuan in March and then steadily rising to 8.62 billion yuan in April, 8.36 billion yuan in May and 11.36 billion yuan last month.
The volume of trade by mainland Chinese in Hong Kong stocks has been choppier, with the average daily southbound turnover standing at HK$1.54 billion in January and dropping to HK$786 million in February before bouncing back to HK$1.62 billion in March.
It then soared to HK$12.37 billion in April when Beijing relaxed rules to allow mainland Chinese mutual funds to invest in Hong Kong, but slumped to HK$5.44 billion in May and HK$4.36 billion last month.
If the Shenzhen-Hong Kong link follows the same pattern, it will do more good than harm to Shenzhen as the market is now dominated by short-term mainland Chinese investors.
Many international investors who trade through the stock connect scheme are institutional outfits such as mutual funds and insurance companies. They take a longer-term view and this is exactly what the Shenzhen market needs.
Adding Shenzhen as a new line in the stock through train could be part of Beijing’s rescue plan as it seeks to stem the rout in the equity markets.
