Forging another link
Investors are eagerly awaiting the launch of the Shenzhen-Hong Kong Stock Connect program, which could happen as soon as Monday, according to some media reports, despite the lack of any official confirmation. The program will allow Chinese mainland investors to trade some stocks on the Stock Exchange of Hong Kong. Also, Hong Kong and international investors can buy and sell some mainland shares listed on the Shenzhen Stock Exchange. Mainland securities firms are actively preparing for the launch, signing up thousands of investors. Experts also pointed out that the stock link will help meet the mainland's need for freer capital flows to Hong Kong.
The long-awaited connection between the Shenzhen and Hong Kong stock exchanges looks to be right around the corner.
The Hong Kong Economic Times reported on Friday that the securities regulators in Hong Kong and on the Chinese mainland intend to launch the Shenzhen-Hong Kong Stock Connect program on Monday.
As of press time on Wednesday, however, the China Securities Regulatory Commission (CSRC) had yet to confirm the date of the launch.
As investors await the news, regulators and the stock exchanges are making a last minute dash to ensure all is ready. On Tuesday, the Shenzhen Stock Exchange announced that it will conduct a comprehensive test online on Saturday to simulate the Day-1 technical operation after the scheme starts.
The stock exchanges, securities firms and investors in Hong Kong and on the mainland have been preparing for the link for a while, and the time is right for launch, said Li Daxiao, chief economist at Shenzhen-based Yingda Securities.
The idea for the link dates back to mid-2014, when the CSRC said that the stock exchanges in Hong Kong and Shenzhen should explore new forms of cooperation based on the Shanghai-Hong Kong Stock Connect program that was launched in mid-2014.
Premier Li Keqiang announced in August this year that the State Council had approved a plan to implement the Shenzhen-Hong Kong Stock Connect, according to a statement published on the central government's website.
The Shenzhen-Hong Kong Stock Connect program allows international investors to buy shares in Shenzhen via Hong Kong stock brokers.
The stocks they are able to trade include all the constituent stocks of the Shenzhen Component Index, according to a statement the Global Times received from UBS Securities in August.
Stocks in the ChiNext Index, which tracks China's NASDAQ-style board of growth enterprises, are limited to institutional investors overseas, according to UBS Securities.
Meanwhile, eligible Hong Kong stocks will include the 318 Hong Kong stocks available under the Shanghai-Hong Kong Stock Connect, as well as 115 stocks in the Hang Seng Small-cap Index that have market capitalizations of more than HK$5 billion ($644.5 million), according to UBS Securities.
Ready for launch
As the time draws nearer for the link's launch, domestic financial institutions have begun offering the link in the services they provide.
By Monday, the CSRC had approved 94 domestic securities firms to engage in the stock connect business, the China Securities Journal reported on Tuesday. Among them, several securities brokers have already started handling client applications for the link.
An employee of China Merchants Securities, who asked to remain unnamed, told the Global Times on Monday that the firm started on November 7 to offer its clients authorization to trade via the link.
"Investors can apply for stock connect services online, or at one of the firm's offices. Once we receive the government's OK, investors can starting trading through the program," he said.
The employee didn't disclose how many clients had been authorized to trade via the stock connect scheme.
The Shanghai-based Haitong Securities also started taking applications on November 7, when it authorized more than 5,000 investors for stock connect services, the Shanghai Securities News reported on November 8.
As of press time, Haitong didn't respond to a Global Times request for an updated figure.
Li told the Global Times that Yingda has also obtained the rights to provide services related to the connect program, and they intend to start authorization service on Thursday.
Adding investor options
The Shenzhen-Hong Kong Stock Connect can also meet the market's need for freer capital flows, particularly from the mainland to Hong Kong, experts said.
"The Shenzhen-Hong Kong Stock Connect has a real buzz, as the Hong Kong market carries several advantages for mainland investment," said Wang Haitao, a senior analyst at the overseas research department at Shanghai-based Shenwan Hongyuan Securities Research Center.
"First, the valuations of Hong Kong stocks are relatively low compared with [those on] the mainland, and that benefits investment like industrial mergers. Second, Hong Kong stocks' dividend yields are relatively high and stable, which is a welcome attribute for mainland investors," Wang told the Global Times on Monday.
The connect program adds 115 stocks with small market capitalizations, and mainland investors have an appetite for those cheap stocks, Dong Dengxin, director of the Finance and Securities Institute at Wuhan University of Science and Technology, told the Global Times on Monday.
"It is anticipated that mainland capital will focus on those small stocks once the scheme starts, and this puts a question mark whether speculative capital will cause a big bubble on the Hong Kong stock market," Dong said.
Ping Ya, a Shanghai-based stock investor, said that she is attracted to cheap stocks on the Hong Kong bourse.
"The Hong Kong stocks eligible for trading under the Shanghai-Hong Kong Stock Connect program are mostly blue chip stocks, but those stocks don't fluctuate much and are not that operable," Ping told the Global Times on Monday.
"I didn't trade any Hong Kong stocks though the Shanghai-Hong Kong Stock Connect. But I think trading the small-cap stocks in Hong Kong might generate earnings more easily, so this time I might give it a go," Ping said.
Although there's market concerns that the connect program might lead to capital outflows, Charles Li -Xiaojia, chief executive of Hong Kong -Exchanges and Clearing, stressed during a forum on Wednesday that the Shenzhen-Hong Kong Stock Connect is not a tool for capital outflows, as the accounts for the connect program are set up on the Chinese mainland.
Wang said the investment from the mainland can provide financial support to small companies in Hong Kong.
"It would prompt the companies' businesses to grow," Wang noted, adding that mainland investment in Hong Kong will also give mainland investors more influence in the city's stock market.
On the flip side, Hong Kong investors won't have much interest in inflated stocks on the ChiNext, particularly when the mainland stock markets remain in a bearish phase, said Dong.
"On the whole, incremental capital will flow to Hong Kong, but those who are accustomed to A-share trading won't easily leave their positions," Dong noted.
