Hong KongShen­zhen stock mar­ket link ready to launch

The Myanmar Times - - International / Business -

A LONG-DE­LAYED trad­ing link be­tween the Shen­zhen and Hong Kong stock markets will open on De­cem­ber 5 – open­ing up the main­land’s tech shares to for­eign in­vestors for the first time.

Orig­i­nally slated to launch last year, it was de­layed af­ter a mas­sive mar­ket run-up and sub­se­quent rout.

The start date was de­cided by Hong Kong’s Se­cu­ri­ties and Fu­tures Com­mis­sion (SFC) and the China Se­cu­ri­ties Reg­u­la­tory Com­mis­sion, the SFC said in a state­ment, with its chair Carl­son Tong say­ing the two reg­u­la­tors had “es­tab­lished mech­a­nisms to pro­tect the in­tegrity of both markets”.

The scheme will link main­land China’s sec­ond stock ex­change, the world’s eighth-largest with a cap­i­tal­i­sa­tion of US$3.3 tril­lion as of Septem­ber, with the bourse in Hong Kong.

The for­mer Bri­tish colony is now a spe­cial ad­min­is­tra­tive re­gion of China but re­mains deeply con­nected to the global financial sys­tem, un­like the main­land’s closed markets.

The new link builds on a sim­i­lar “stock connect” be­tween Shang­hai and Hong Kong launched two years ago, which gave for­eign­ers new ac­cess to Chi­nese com­pa­nies not quoted else­where, and en­abled main­lan­ders to trade in Hong Kong.

The Shen­zhen connect will en­able for­eign­ers to buy shares in a to­tal of 863 Chi­nese firms for the first time, author­i­ties said ear­lier.

They in­clude ap­pli­ance man­u­fac­turer Midea – which bought Ger­man ro­bot­ics firm Kuka this year – model car­maker Ras­tar, owner of Span­ish foot­ball club Es­panyol, and Sun­ing Com­merce, part of the group that ac­quired In­ter Mi­lan ear­lier this year.

China’s Se­cu­ri­ties Times news­pa­per cited ex­change gen­eral man­ager Wang Jian­jun as say­ing that by value, nearly 60 per­cent of the newly avail­able firms were in new and emerg­ing in­dus­tries, such as in­for­ma­tion tech­nol­ogy and medicine, among oth­ers.

Some of the big­gest are lit­tle­known out­side China, such as Fo­cus Me­dia In­for­ma­tion Tech­nol­ogy, which owns 180,000 television ad­ver­tis­ing screens across the coun­try and is val­ued at $23 bil­lion, or video surveil­lance provider Hangzhou Hikvi­sion Digital Tech­nol­ogy, with a mar­ket cap­i­tal­i­sa­tion of $22 bil­lion.

But a 6 bil­lion yuan (US$900 mil­lion) min­i­mum mar­ket cap­i­tal­i­sa­tion ex­cludes smaller com­pa­nies.

That could pro­tect out­side in­vestors from some of the wilder gy­ra­tions of Chi­nese share prices.

More than 99pc of China’s 116 mil­lion in­vestors are rumour-driven small in­vestors, the lat­est of­fi­cial fig­ures show – an un­usu­ally high pro­por­tion by in­ter­na­tional stan­dards.

The main­land’s bourses have been com­pared to casi­nos, with in­sider trad­ing and dra­matic swings in share prices seem­ingly un­con­nected to un­der­ly­ing business prospects.

The bench­mark Shang­hai Com­pos­ite In­dex soared by 150pc in the 12 months to June last year, de­spite China’s eco­nomic growth slow­ing, in a bub­ble pro­moted by author­i­ties, be­fore it burst in spec­tac­u­lar fash­ion.

“China’s main­land mar­ket is still very heavy on spec­u­la­tion. If in­vestors from Hong Kong side can’t un­der­stand this, they may not come,” Haitong Se­cu­ri­ties an­a­lyst Zhang Qi told AFP.

Beijing has been try­ing to have Chi­nese A shares in­cluded in the in­flu­en­tial MSCI Emerg­ing Markets In­dex, which could help steer more for­eign port­fo­lio in­vest­ment into the coun­try at a time when author­i­ties are fight­ing off cap­i­tal flight.

An­a­lysts say the stock connect rep­re­sents another ef­fort by Beijing to prove to in­ter­na­tional in­vestors its markets are grad­u­ally open­ing.

It could per­haps strengthen its case for in­clu­sion as the trad­ing quota “could al­low more funds to move across the bor­der”, Sam Chi Yung, Hong Kong-based se­nior strate­gist at South China Re­search Lim­ited, said.

Beijing main­tains strict for­eign ex­change lim­its as part of the rul­ing party’s tools to con­trol the cur­rency, and the stock connect scheme works by en­abling in­vestors to de­posit funds in one ju­ris­dic­tion and make trades in the other.

A to­tal of 23.5 bil­lion yuan in cross-bor­der trans­ac­tions will be al­lowed per day un­der the Shen­zhen scheme, reg­u­la­tors said.

But de­spite heavy hype be­fore its Novem­ber 2014 launch, the Shang­haiHong Kong connect has failed to ex­cite traders, with both daily quo­tas for “south­bound” main­land and “north­bound” in­ter­na­tional buy­ers of­ten go­ing un­filled.

Main­land Chi­nese trad­ing ac­counts are valid for both the Shang­hai and Shen­zhen ex­changes, so that the Shen­zhen link does not give ac­cess to the Hong Kong bourse to any ex­tra main­land in­vestors.

How­ever, it will al­low the ex­ist­ing ones to trade another 101 smaller Hong Kong-listed com­pa­nies.

Un­der the rules, Chi­nese in­vestors need to have se­cu­ri­ties ac­counts worth 500,000 yuan be­fore they can buy into Hong Kong, ef­fec­tively bar­ring most of the re­tail traders.

An­a­lysts ex­pect the Shen­zhen link will have lit­tle south­bound sig­nif­i­cance. Zhang Qun of Citic Se­cu­ri­ties said the pro­gram’s in­tent was more “sym­bolic” than sub­stan­tive. –

‘China’s main­land mar­ket is still very heavy on spec­u­la­tion.’ Zhang Qi Haitong Se­cu­ri­ties

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