Hong Kong links exchange to new city
HONG KONG — Trading began Monday on a new cross-border stock link between Hong Kong and the neighboring Chinese city of Shenzhen, widening access to China’s markets for global investors.
The long-awaited Shenzhen-Hong Kong Stock Connect link allows international investors to buy and sell 880 high-growth small and midcap stocks traded on the exchange in the southern boomtown of Shenzhen via the Hong Kong exchange.
A similar link between Hong Kong and China’s main exchange in Shanghai was opened two years ago but has shown only a mediocre performance, with investors rarely hitting daily limits on trading volume.
Hong Kong’s top leader and the exchange’s chairman marked the occasion
by banging a gong in a ceremony connected by live videolink to their counterparts in Shenzhen, where officials rang a bell to kick off trading.
Market response was muted in early trading, with the Shenzhen All-Share index down 0.4 percent while the Hang Seng slipped 0.3 percent, in line with other Asia market declines.
“If Shanghai Connect was our baby step on the first step, Shenzhen connect is our second step. Now we can walk and we can begin to run. So this indeed is a historical moment,” said Charles Li, chief executive of market operator Hong Kong Exchanges and Clearing.
With a market value of $3.3 trillion, Shenzhen’s exchange rivals Shanghai’s in size and is the world’s eighth biggest. While Shanghai is home to many huge state-owned enterprises, Shenzhen’s exchange is dominated by small, fast-growing private companies in up-and-coming sectors such as technology and health care. It often is referred to as China’s Nasdaq.
“We believe Shenzhen is the largest untapped market in the world and, not surprisingly, investor knowledge is fairly limited,” HSBC’s Steven Sun and Bruce Pang said in a recent report.
Foreign ownership of Shenzhen-listed companies is minimal, at less than 1.2 percent. In Hong Kong, a former British colony controlled by China that has a financial system open to international investors, it’s 46 percent.
Hong Kong has long been used as an offshore outpost by Beijing, since China’s markets are still mostly fenced off from global capital flows. Before the links were opened, foreign access was limited to a quota program for selected fund managers.
Of the 880 stocks listed in Shenzhen that can be traded via the Hong Kong exchange about 200 on the tech-heavy ChiNext board will be open to institutional professional investors at first.
Mainland investors, meanwhile, get access to 417 Hong Kong small cap stocks. That might appeal to mainland investors looking to diversify away from assets denominated in the yuan, now at its weakest in eight years. Hong Kong stocks are priced in the city’s own currency, which is pegged to the U.S. dollar.
Shenzhen’s status as a financial center has risen as China’s communist leaders have sought to shift away from reliance on export-oriented manufacturing toward growth based on self-sustaining, more environmentally friendly domestic demand.