Shenzhen-HK Stock Connect to broaden foreign access

Staff of Hong Kong Exchanges and Clearing Limited lowering its flag in Hong Kong. China's central government has approved plans to link trading between the Shenzhen stock exchange and the Hong Kong market, paving the way for a long-awaited reform.
Staff of Hong Kong Exchanges and Clearing Limited lowering its flag in Hong Kong. China's central government has approved plans to link trading between the Shenzhen stock exchange and the Hong Kong market, paving the way for a long-awaited reform.PHOTO: AGENCE FRANCE-PRESSE

Impact on Singapore expected to be limited, amid weak sentiment on China

The official approval of an eagerly anticipated stock-trading link between Shenzhen and Hong Kong is set to give foreign capital easier access to a wide selection of China growth firms.

The platform will also benefit Singapore investors, but some market watchers believe interest will likely be limited, at least for now, amid current weak sentiment on China.

Premier Li Keqiang announced on Tuesday that the Shenzhen-Hong Kong Stock Connect had been approved, in a bid to further liberalise China's capital market and deepen the mainland's financial linkages with Hong Kong.

No further details were provided, but implementation is expected to be some four months away.

Remisier Alvin Yong believes the new link will be very similar to the Shanghai-Hong Kong link-up launched in November 2014.

"Most brokers in Singapore will have a counter-party broker in Hong Kong, so a Singapore investor can access the Shanghai shares - and very soon the Shenzhen market - via Hong Kong for a fee," Mr Yong said.

A commission of about 0.3 per cent is currently required to trade Shanghai-listed shares via brokers. Other foreign fees, such as a handling fee of around 0.005 per cent and a management fee of 0.002 per cent, are also required.

"The Hong Kong link opened access to 567 Shanghai stocks, and very soon it'll add another 880 from Shenzhen. Without the platform, the door would be pretty much shut for retail investors, who could only invest through funds and unit trusts with RQFII," CMC Markets analyst Margaret Yang said, referring to a government scheme that licenses institutions to invest in mainland shares within a given quota.

The link does not mean foreign investors, including those in Singapore, will necessarily pile into Shenzhen shares, Ms Yang said.

"When the Shanghai Connect was launched, the bull market there was still running strong. But look at the market now - the volume has shrunk, the sentiment is weak. I don't expect a similar rush into Shenzhen Connect."

The Shanghai Composite Index rose nearly 30 per cent between mid-November 2014 when the stock connect was launched and the end of 2014, part of the blistering bull run before the mid-2015 crash.

Against this backdrop, the impact on Singapore as a capital market should also be limited.

"The amount of foreign participation in the Chinese markets has always been low - at less than 2 per cent in Shanghai even at its peak last year. So I don't think it will be decisive factor in the competition for foreign capital flow," Ms Yang said.

Mr Yong agreed, adding a lack of corporate information on China firms has long been a hurdle for foreigners.

Reflecting this reservation, Shenzhen Composite closed up only 0.32 per cent yesterday. So far this year, it has fallen 11.5 per cent.

Still, KGI Fraser Securities trading strategist Nicholas Teo is keeping an eye on the Shenzhen market.

"Shenzhen offers a different range compared with Shanghai - more frontier companies, Internet start-ups, media companies, essentially players in the new economy.

"After the whack-down earlier this year, I think the Chinese markets may be somewhat under-owned now. I'm not recommending a buy, but this thing may move and take people by surprise."

A version of this article appeared in the print edition of The Straits Times on August 18, 2016, with the headline 'Shenzhen-HK Stock Connect to broaden foreign access'. Print Edition | Subscribe