Hong Kong’s Securities and Futures Commission (SFC) said on Tuesday there will be no aggregate quota in the Shenzhen Connect, and added that the existing Shanghai-Hong Kong Stock Connect quota has been abolished.
The new Shenzhen Connect agreement means that for the first time international investors will be able to trade stocks listed in the southern Chinese city, which is home to many more technology companies and start-ups than Shanghai.
It also represents a further step in a trend towards the liberalisation of mainland Chinese markets and will be a key test of global appetite for Chinese shares.
The Shenzhen linkage was supposed to be up and running in 2015, but faced delays due to concern over strong market volatility. However, as yet no date for the official opening has been announced.
“A separate announcement on the commencement of Shenzhen-Hong Kong Stock Connect will be made in due course,” the SFC said.
Strong appeal
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.”
A-shares in
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.”
