Key gauges increase by big margins as new economic blueprint boosts investor confidence
Share prices surged on Wednesday, boosted by reports of a stock connect between Shenzhen and Hong Kong by the end of the year and renewed optimism about China's new economic blueprint.
Market gauges of both Shanghai and Shenzhen rocketed on Wednesday to the highest points in more than two months. The Shanghai Composite Index jumped by 4.31 percent to 3,459.64 points, while the Shenzhen Component Index surged 5.29 percent to 11,884.9 points. ChiNext Index, the NASDAQ-style board of the Shenzhen Stock Exchange, surged by 6.38 percent to 2,584.32 points.
Meanwhile, the Hang Seng Index, the benchmark of Hong Kong stock market, closed at 23,053.57 points, gaining 2.15 percent.
The rally was triggered by speculation that a new stock markets link between Shenzhen and Hong Kong, similar to the Shanghai-Hong Kong Stock Connect, would be set up and running by the end of the year.
Share prices of Hong Kong Exchanges and Clearing Ltd rose by 9 percent to HK$218, before closing at HK$209.2, up 4.7 percent.
"The Shenzhen-Hong Kong Stock Connect program will be launched this year, as a new channel to open China's capital market to the world," Zhou Xiaochuan, governor of the People's Bank of China, the central bank, was quoted as saying in an announcement published on the central bank's website on Tuesday.
However, Hong Kong Exchanges and Clearing Ltd said on Wednesday that the proposed Shenzhen-Hong Kong Stock Connect is still subject to regulatory approval, and no formal agreements have been struck yet.
A spokesperson for the exchange told China Daily that details of the connect depend on further information from the authorities. The capital market will probably need three months of preparation for the launch after the official announcement, she said.
Later on Wednesday, the central bank updated its webpage and said that the published article is an abstract from a speech Zhou made on May 27 this year, prior to the stock market meltdown on the Chinese mainland.
Since June 12, the Shanghai Composite Index has fallen by more than half, plummeting from a high of 5,166 points to the bottom of 2,927 points on August 26.
Ken Peng, Asia Pacific investment strategist of Citicorp International Ltd in Hong Kong, said: "The stock connect speculation appears to be a blunder. However, we are still positive about stock market prospects in the short to mid-term. After the extremely pessimistic September, the market rebound in October happened too fast and many investors missed the chance. Many of them will need to catch up before year end."
Peng said that China's 13th Five-Year Plan for 2016-20, is likely to boost investor confidence in the country's economy as long as the authorities are persistent in pushing forward various reforms. "We continue to focus on reforms of State-owned enterprises and wait for the details to unfold. As economic restructuring carries on in China, we favor consumption and service sectors over the secondary industry for the long term."
A proposal was issued on Tuesday as the outline of the new five-year plan. President Xi Jinping said the country's annual growth rate should be no less than 6.5 percent in the next five years in order to double its GDP and per capita income by 2020 on the basis of 2010.
The proposal will be submitted to the National People's Congress next March for further approval. A final version of the plan will be announced thereafter with various numerical targets, said a JP Morgan report at the end of October.
Separately, Peng added the Shenzhen stock connect is more likely in the first half of next year.
Alexander Lee Ho-wan, strategist of DBS Vickers Securities in Hong Kong, said that a new channel connecting Shenzhen and Hong Kong markets would not significantly boost cross-border investment flows between the two cities. But it will serve as a cheerleader to market momentum. "As more investors come back, the A-share turnover will rise and the market will revive."
Lee said that a new stock connect, among other capital market liberalization efforts, will be a step toward A shares' inclusion in the MSCI indexes, which, if realized, will boost foreign funds' allocation to mainland assets.
