Leung Chun-ying (5th R), chief executive of Hong Kong Special Administrative Region, and Hong Kong Exchanges and Clearing Chairman Chow Chung-kong (4th L) jointly beat the gong to mark the launch of the Shenzhen-Hong Kong Stock Connect, the second link between the inland and Hong Kong bourses, in Hong Kong, south China, Dec. 5, 2016. (Xinhua/Wang Shen)
A new cross-border stock link between Hong Kong and neighbouring Shenzhen will upgrade opening-up of Chinese mainland's capital market.
The Shenzhen-Hong Kong Stock Connect opened on Monday, offering 881 stocks listed on the tech-heavy Shenzhen stock market to global investors via the Hong Kong bourse. It came after a similar link, Shanghai-Hong Kong Stock Connect, which was launched two years ago to provide 567 stocks on the Shanghai bourse.
A most important point of the Shenzhen-Hong Kong Stock Connect is that it has offered China's most innovative industries and enterprises to global investors, said Charles Li, Hong Kong Exchanges and Clearing Limited chief executive.
The new trading link helps double the daily turnover quota of the entire stock connect program to 26 billion yuan (3.77 billion U.S. dollars) for overseas investors.
NEW MILESTONE IN OPENING UP CAPITAL MARKET
It was only in 1993 that the first enterprise from the mainland got listed overseas, namely Tsingtao Brewery listed in Hong Kong. Twenty-three years later, three bourses in Shanghai, Shenzhen and Hong Kong have been connected in a certain way, ushering in a new era of opening up on the mainland.
Steven Sun, head of HSBC Global Research, said the long-awaited Shenzhen-Hong Kong Stock Connect is another milestone in opening up of mainland's capital market, giving investors access to previously unavailable opportunities to invest in the mainland's future growth.
Bloomberg economist Fielding Chen said in the 1980s when the mainland started opening up, most policies were designed to attract investment, but this time it is not about money.
The bigger end of the stock connect mechanism is to attract institutional investors, for example overseas banks, to change the investment landscape of the mainland's stock market, he added.
Chen added that Hong Kong in essence represents the global market, as international funds can flow freely into or out of Hong Kong, and connecting to the Hong Kong is connecting to the global market.
Dr. E Zhihuan, chief economist at the Bank of China (Hong Kong), expected the stock connects to change investment habits of the mainland investors, but "changes will be gradual."
Unlike many of the world's stock markets, the Shenzhen market is dominated by retail investors rather than institutional investors, who make up more than 80 percent of the trades on the Chinese mainland's stock exchanges, according to an HSBC report.
The market of A-shares, or mainland's local currency shares, has been characterized by frequent trading and high velocity, but a market driven by institutional investors would be more rational and less volatile, the report said.
According to the China Securities Regulatory Commission and the Shenzhen Stock Exchange, overseas ownership of Shenzhen-listed A-share companies was less than 1.2 percent in early 2016, far below 46 percent in China's Hong Kong stock market, 26 percent in Japan, 30 percent in the Republic of Korea, 30 percent in Brazil and 23 percent in Russia.
"That's why the Shenzhen stock market represents the largest untapped investment opportunity in the world," Sun said.
The new link has demonstrated that the mainland is committed to bringing accessibility of the A-share market closer to international standards, he said.
