Shenzhen-Hong Kong Stock Connect officially opens

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After months of anticipation, Monday saw the opening day of the Shenzhen Stock Exchange link with Hong Kong’s Stock Exchange.

Hong Kong Exchanges and Clearing Chief Executive Charles Li formally announced the launch of the Shenzhen-Hong Kong Stock Connect on Monday.

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The program gives foreign investors direct access to 881 Shenzhen-listed stocks representing 71% of total market capitalization, while mainland investors are able to trade 417 Hong Kong stocks representing 87% of market capitalization, according to statements from the Shenzhen Stock Exchange and Hong Kong’s Securities and Futures Commission.

The capital threshold for Mainland investors is set at 500,000 yuan (72,575 US dollars) in securities and capital account combined. Although there is no aggregate limit on the amount that can be invested via the new trading link, the daily limit for flows into Shenzhen will be 13 billion yuan (1.89 billion US dollars); for flows into Hong Kong, 10.5 billion yuan (1.52 billion US dollars).

The link-up between Shenzhen and Hong Kong follows the launch of the Shanghai-Hong Kong Stock Connect in November 2014, which allowed international investors to trade in 568 Shanghai-listed A shares, and 315 Hong Kong stocks. Hong Kong has benefited from the Stock Connect scheme as mainland investors look to buy overseas assets to counter the weakening of yuan, the Chinese currency.

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“The Shenzhen Hong Kong stock link program will further boost the opening up of China’s capital markets. It supports the internationalization of the yuan. Capital markets in Hong Kong, Shanghai and Shenzhen are joining together to make China's capital markets more competitive.” Wang Jianjun, the President and CEO of Shenzhen Stock Exchange told CCTVNEWS.

Wang added, the Shenzhen and Hong Kong stock link is very different from the Shanghai and Hong Kong link because it has no total trading quota, which is quite significant. It shows confidence and determination of China to open up financial market, and more importantly, it marks another channel to attract foreign investment.

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The Shenzhen exchange—China’s highest-volume market—is home to many “new economy” companies in such sectors as health care and technology, which analysts say could prove more attractive to foreign investors than the large state-owned companies in slow-growth sectors that dominate the Shanghai exchange.

The link paves the way for Mainland-listed shares to be included in MSCI Inc.’s emerging-market index; given that the index is tracked by some 1.5 trillion-dollar worth of funds, that would likely draw tens of billions of dollars. The global index provider declined to include A shares this June partly due to its concerns about limited foreign access.