Hong Kong and Shenzhen bourses linked, but markets do not rejoice

Together they represent the second largest financial centre in the world with a market capitalisation of 7,400 billion dollars. A year after it was announced, the regulatory and supervisory authorities give the green light, but investors need time and trust to recover from the shock caused by Shanghai in August 2015.

Hong Kong (AsiaNews) – China’s regulatory authorities have approved a long-anticipated trading link between Hong Kong and Shenzhen's stock markets. A year after the initial announcement, the Connect represents a major reform in China’s equity markets after the collapse of the Shanghai Stock Exchange last summer.

The regulatory commission that had launched the Shanghai-Hong Kong Connect also abolished overall quota limits that international investors considered restrictive.

Over the past year, Beijing's decision has faced of doubts and restrictions by international financial markets. The close connection between Hong Kong and mainland exchanges heralds a significant flow of foreign capital. The unstated goal is to have China’s bourses included in global index providers MSCI.

"Shenzhen Connect should move China further along the road to MSCI inclusion. We see this announcement as a significant catalyst for Chinese markets," said Douglas Morton, head of Asia research at Northern Trust Capital Markets.

The scheme had been expected more than a year ago, but was put on hold by last year's market crash, which saw stocks slump around 40 per cent and a raft of government measures to prop up the market.

Though the actual launch is unlikely to trigger an avalanche of funds into China's stock markets - given relatively expensive valuations and a slowing economy - mainland Chinese investors will likely cheer another option to diversify.

"Foreign investors are still taking a wait-and-see approach to (mainland Chinese-listed) A-share investment as they are yet to regain confidence in the mainland stock market," said Liao Qun, China chief economist at Citic Bank International in Hong Kong.

His observations were confirmed by the opening of Asian markets: the Shanghai Composite Index fell 0.19 per cent, whilst Hang Seng Index was up only 0.23 per cent %.

Combined, the Shanghai and Shenzhen have a market capitalisation of USD 7.4 trillion, second in the world behind the S & P 500, which is USD 19.7 trillion, but ahead of Tokyo’s USD 5 trillion.

Hong Kong is the world's second-busiest bourse whereas Shenzhen is Asia's busiest exchange with monthly turnover of more than trillion.

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