The pending connection of mainland stock markets with the Stock Exchange of Hong Kong has raised the hopes of mainland investors. That's because the Shenzhen-HK connect is expected to inject vigor into the Hong Kong market while attracting institutional investors.
Let's take a look at the differences between the new stock connect and the one that already links Shanghai and Hong Kong.
China's Shenzhen stock exchange will start trading in conjunction with the Hong Kong market in November. Prior to that, Shanghai alone was connected with Hong Kong to help link the share markets on both sides. The Shenzhen-Hong Kong stock connect is expected to be more active in transactions.
"Index stock that values for 6 billion yuan or above can be included into Shenzhen Hong Kong stock connect. Based on the latest closing prices, about 870 listed firms meet this requirement. That's 300 stocks more than that in the Shanghai and Hong Kong Stock Connect," said Yang Delong, chief strategist of First Seafront Fund.
Chinese regulators have removed the total quota for both the Shenzhen and Shanghai stock connects, hoping to boost transactions. However, regulators kept the cap for daily cash flows -- 13 billion yuan from Hong Kong to the mainland, and 11 billion yuan from the mainland to Hong Kong. Experts say the benefits will travel in both directions.
"Speculation in Hong Kong's stock market is much lower than in its mainland counterpart. But it's more active in the mainland market than that of Hong Kong's. Mainland investors will value the variety in the HK market, and HK investors would look more at the growth prospects of the mainland markets," said Wu Xiaoqiu, director FSI, Renmin University Of China.
However, two years after the Shanghai Hong Kong stock connect began, the transactions volume has been lower than expected. Institutional investors in Hong Kong failed to bump up blue-chip stocks in the mainland as expected and cash-rich mainland investors didn't flood the HK market.
With the Shenzhen-HK connect in its final prepatory stages, expectations for prosperous capital markets in the big China region are back on the rise.
