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Shenzhen-Hong Kong Stock Connect Market Brief
Shenzhen-Hong Kong Stock Connect Market Brief
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Shenzhen-Hong Kong Stock Connect Market Brief

16/09/2016

The first cross border connect scheme: Shanghai–Hong Kong Stock Connect

The first cross border connect scheme, the Shanghai–Hong Kong Stock Connect, launched in November 2014 and was dubbed the ‘through train’. Investors and market participants will have to wait no longer for the next ‘train’ as the launch of the Shenzhen–Hong Kong Stock Connect has been confirmed for later this year.

The joint announcement on 16th August 2016 from the China Security Regulatory Commission (CSRC) and the Securities and Futures Commission of Hong Kong (SFC) came as no surprise in the ongoing opening up of China’s capital markets. It did finally set the clock ticking on a four-month period for securities firms to prepare. Much of the technical arrangement is expected to follow the existing Shanghai framework, making Shenzhen an easier project for investors and providers to plan towards. Some changes are worth noting though, such as the removal of aggregate quota across both Connect schemes.

While the daily trading volume limits remain, they are segregated between North and Southbound trading with daily quota of RMB 13 billion and 10.5 billion respectively. The removal of this aggregate quota may clear the way for attracting more foreign participation, and provide a catalyst for the MSCI indices A-shares inclusion. ETFs are slated to be available as early as 2017, creating more investment options, moving the Renminbi (RMB) forward beyond a trade and reserve currency. International investors should sit up and take note. The Shenzhen Connect offers an alternative to the Qualified Foreign Institutional Investor (QFII) in terms of participating in the Chinese markets without quotas and opens the door to direct access.

 

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