Shenzhen, HK exchange linkage under discussion

Move signals govt intent to open markets further

A plan to link bourses in Shenzhen and Hong Kong is currently being discussed, Chinese news portal sina.com.cn reported on Tuesday, citing a government official, the latest in a series of moves to open up the country's capital markets.

Xiao Zhijia, deputy director of the office of financial development services of Shenzhen, made a mention of the possible stock trading link at a conference held in Hong Kong to promote financial innovations in Qianhai, a special economic zone in the boomtown of Shenzhen, said the report. Xiao didn't give a timetable for the plan.

The office and bourses were not available for comment by press time.

Back in January, the office of financial development services of Shenzhen released a set of guidelines on the city's financial reform and innovation that included suggestions of establishing a cross-border trading system between the two stock exchanges.

The proposition, if officially confirmed, would be an indication that the central government's push for capital account liberalization is bolder than previously thought, Li Daxiao, director of research with Shenzhen-based Yingda Securities Co, told the Global Times on Tuesday.

In April, the Shanghai-Hong Kong Stock Connect program, which will allow mainland and Hong Kong investors to buy stocks in each other's markets within allocated quotas, gained approval from the China Securities Regulatory Commission and the Securities and Futures Commission of Hong Kong, according to an announcement on the website of the Hong Kong Stock Exchange.

The pilot program is set to be launched in October after about six months of preparation.

To verify market participants' readiness for trading and clearing transactions under the program, market rehearsals will be conducted on Saturday and Sunday, as well as on September 13, the Hong Kong Stock Exchange said in a statement issued on Tuesday.

With the program of opening mutual market access between Shanghai and Hong Kong being trialled, it would be easier to set up a linkage between the bourses in Shenzhen and Hong Kong, said Li from Yingda Securities.

If the stock trading link connecting Shanghai and Hong Kong pans out, the through-train linking Shenzhen and Hong Kong will be up and running within the year, the sina.com.cn report said, citing Francis Cheung, managing director of CLSA Asia-Pacific Markets.

In anticipation of vibrant trading activities after the start of the exchange link between Shanghai and Hong Kong, Cheung said the initial investment quotas may soon run out.

A daily cap of 13 billion yuan ($2.11 billion) is placed on the amount Hong Kong investors can trade in the Shanghai bourse, or 300 billion yuan in total, while mainland investors can invest a maximum of 10.5 billion yuan a day, with the aggregate total set at 250 billion yuan, according to the announcement in April by securities regulators in Beijing and Hong Kong.

The capping rules might be referenced for formulating investment quotas for the trading link between Shenzhen and Hong Kong, Li noted.

Still some analysts warned against too much optimism about the linkage of Shenzhen and Hong Kong markets.

Unlike the Shanghai Stock Exchange, stocks listed on the Shenzhen bourse mostly comprise of startups and small businesses subject to higher risks, therefore a trading link between Shenzhen and Hong Kong, if established, would still be quite different with more issues to be ironed out, Zhang Xin, a Beijing-based analyst at Guotai Junan Securities, told the Global Times on Tuesday.

The Shanghai Composite Index closed down 0.99 percent on Tuesday, while the Shenzhen Component Index shed 1.52 percent. The Hang Seng Index also fell 0.37 percent.