Chinese officials are masters of gradualism. The nation’s path toward capital market liberalization has at times been painfully slow. But the approval of a link between the Hong Kong and Shenzhen stock markets, which was supposed to happen months ago, is a welcome step.
As a result, account holders in China will have nearly unfettered access to Hong Kong-listed equities – without the overall quotas that were imposed in 2014 when a similar hook-up was announced between Hong Kong and the Shanghai Exchange (SH-HK Stock Connect, see Chart of the Day). That leaves only a daily cap. On the flip side, international investors with trading accounts in Hong Kong will secure access to the Shenzhen exchange, which has a higher weighting in technology and medical firms than the more industrially-focused Shanghai exchange.
The move is likely to provide positive catalysts both for Hong Kong and China domestic "A-share" equity markets. CIO expects the chief beneficiaries to include new economy firms, small to mid-caps, blue chips, and actively-traded Shanghai-Hong Kong Stock Connect stocks. In addition the Shenzhen link takes Chinese stocks a step closer to winning inclusion in the MSCI global indices, a prize it was denied again in June.
China’s journey toward a floating exchange rate and open capital markets continues…
For more on CIO's preferred stock selection and Equity Preference Lists, please refer to CIO investment themes "A prosperous New China" and "Rebalancing ideas within China equities."