SHANGHAI: A long-delayed trading link between the Shenzhen and Hong Kong stock markets will open Dec 5, regulators said Friday (Nov 25), opening up the mainland's tech shares to foreign investors for the first time.
Originally slated to launch last year, it was delayed after a massive market run-up and subsequent rout.
The start date was decided by Hong Kong's Securities and Futures Commission (SFC) and the China Securities Regulatory Commission, the SFC said in a statement, with its chairman Carlson Tong saying the two regulators had "established mechanisms to protect the integrity of both markets".
The scheme will link mainland China's second stock exchange, the world's eighth largest with a market capitalisation of US$3.3 trillion as of September, with the bourse in Hong Kong.
The former British colony is now a special administrative region of China but remains deeply connected to the global financial system, unlike the mainland's closed markets.
The new link builds on a similar "stock connect" between Shanghai and Hong Kong launched two years ago, which gave foreigners new access to Chinese companies not quoted elsewhere, and enabled mainlanders to trade in Hong Kong.
The Shenzhen connect will enable foreigners to buy shares in a total of 863 Chinese firms for the first time, authorities said earlier.
They include appliance manufacturer Midea - which bought German robotics firm Kuka this year - model carmaker Rastar, owner of Spanish football club Espanyol, and Suning Commerce, part of the group that acquired Inter Milan earlier this year.
China's Securities Times newspaper cited exchange general manager Wang Jianjun as saying that by value, nearly 60 per cent of the newly available firms were in new and emerging industries, such as information technology and medicine, among others.
Some of the biggest are little-known outside China, such as Focus Media Information Technology, which owns 180,000 television advertising screens across the country and is valued at $23 billion, or video surveillance provider Hangzhou Hikvision Digital Technology, market capitalisation $22 billion.
But a 6 billion yuan (US$900 million) minimum market capitalisation excludes fast-growing smaller companies.
That could protect outside investors from some of the wilder gyrations of Chinese share prices.
More than 99 per cent of China's 116 million investors are rumour-driven small investors, the latest official figures show - an unusually high proportion by global standards.
The mainland's bourses have been compared to casinos, with insider trading and dramatic swings in share prices seemingly unconnected to underlying business prospects.
The benchmark Shanghai Composite Index soared by 150 per cent in the 12 months to June last year, despite China's economic growth slowing, in a bubble promoted by authorities, before it burst in spectacular fashion.
"China's mainland market is still very heavy on speculation. If investors from Hong Kong side can't understand this, they may not come," Haitong Securities analyst Zhang Qi told AFP.
SYMBOL OVER SUBSTANCE?
Beijing has been trying to have Chinese A shares included in the influential MSCI Emerging Markets Index, which could help steer more foreign portfolio investment into the country at a time when authorities are fighting off capital flight.
Analysts say the stock connect represents another effort by Beijing to prove to international investors its capital markets are gradually opening.
It could perhaps strengthen its case for inclusion as the trading quota "could allow more funds to move across the border", Sam Chi Yung, Hong Kong-based senior strategist at South China Research Limited, told AFP.
Beijing maintains strict foreign exchange limits as part of the ruling party's tools to control the currency, and the stock connect scheme works by enabling investors to deposit funds in one jurisdiction and make trades in the other.
A total of 23.5 billion yuan in cross-border transactions will be allowed per day under the Shenzhen scheme, regulators said.
But despite heavy hype before its November 2014 launch, the Shanghai-Hong Kong connect has failed to excite traders, with both daily quotas for "southbound" mainland and "northbound" international buyers often going unfilled.
Mainland Chinese trading accounts are valid for both the Shanghai and Shenzhen exchanges, so that the Shenzhen link does not give access to the Hong Kong bourse to any extra mainland investors. However, it will allow the existing ones to trade another 101 smaller Hong Kong-listed companies.
Under the rules Chinese investors need to have securities accounts worth 500,000 yuan before they can buy into Hong Kong, effectively barring most of the country's retail traders.
Analysts expect the Shenzhen link will have little southbound significance.
Citic Securities analyst Zhang Qun said the programme's intent was more "symbolic" than substantive.
"The programme has more symbolic meaning, in terms of completing the system, than actually impact the market. It doesn't have much long-term influence."
The Shenzhen Composite Index closed up 0.39 per cent at 2,129.85 on Friday before the announcement.