China approves Shenzhen-Hong Kong Connect

Added 17th August 2016

China's regulator has formally approved the Shenzhen-Hong Kong Stock Connect, which was expected to launch last year.

China approves Shenzhen-Hong Kong Connect

The approval was announced after markets closed yesterday.

Hong Kong’s Securities and Futures Commission said there will be no aggregate quota in the Shenzhen Connect and the Shanghai-Hong Kong Connect quota has been abolished.

The Shenzhen linkage was initially planned to be live in 2015, but faced delays due to concern over strong market volatility.

No date of offical opening was announced.

“A separate announcement on the commencement of Shenzhen-Hong Kong Stock Connect will be made in due course,” the SFC said.

Karine Hirn, partner, and Francois Perrin, a portfolio manager at East Capital, hailed the approval and commented that the Shenzhen exchange has “21st century” China stocks that should appeal to overseas instutional investors as opposed to retail investors.

“The Shenzhen market has significantly more small-cap stocks than Shanghai, with an average market cap of about half of that of Shanghai listed shares,” the firm said in a statement. “Due to the Mainland’s investment style, which favours small-cap and high-growth stocks, trading in the Shenzhen market has been very active.

“If local retail investors will continue to dominate the flow, it is expected that overseas institutional investors will focus more on Shenzhen than Shanghai because this is China in the 21st century.”

The firm also noted that “the entire MSCI China A-shares’ constituent list has now been included in the Northbound eligible list, and MSCI Inc. should appreciate this opening of the market when reviewing it for its decision to include A-shares in its indices.”

Aidan Yao, senior emerging Asia economist at Axa Investment Managers, also sees it as a positive move, but said the firm nonetheless remains cautious on China equities.

“A sustained re-rating of the market can only be achieved, in our view, by material progress on structural reforms.”

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