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China gives green light to latest stock market tie-up

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SHANGHAI-China's State Council on Tuesday approved the launch of the long-anticipated Shenzhen-Hong Kong Stock Connect, almost two years after the country opened a similar link between Shanghai and Hong Kong's stock markets.

Parent Dalian Wanda Group, owned by China's richest man Wang Jianlin, offered HK$52.8 per share to buy out the Hong Kong-listed property unit, aiming to take it private before relisting it in China where it hoped to gain better valuation.

He said over the next three to four months, the stock exchange would conduct technical preparations and testing, update regulations and raise investor awareness, and then await the announcement of a launch date from regulators.

Karine Hirn, partner, and Francois Perrin, a portfolio manager at East Capital, hailed the approval and commented that the Shenzhen exchange has "21st century" China stocks that should appeal to overseas instutional investors as opposed to retail investors.

Shenzen's is the eighth largest stock exchange in the world and fourth largest in Asia, based on the $2.3trn market capitalisation of its constituent companies. Another broader trading quota will be dropped for both trading links. "The entry of worldwide investors will cause differentiation among the Shenzhen-listed companies and allow the cream to the rise to the top".

The opening-up of China's financial sector, including the capital market, is an important part of the country's reform and opening-up endeavors and will play a crucial role in improving the sector's worldwide competitiveness and capability to serve the real economy, the premier said.

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Nonetheless, Fraser Howie, a long-time observer of China's capital markets, said: "Hopefully this expansion of the [connect] program will mark a new chapter in the market development".

"Under "One Country, Two Systems", Hong Kong is in a unique position to build important connectivity with the Mainland markets and to facilitate the gradual opening of China's capital account", Mr Chow said.

The daily quota under the mechanism will be the same as that under the Shanghai-HK mechanism, or 13 billion yuan (1.96 billion USA dollars) for northbound investment and 10.5 billion yuan for trading Hong Kong-listed shares. But financial shares in Hong Kong fell on Tuesday, pacing sector weakness on the mainland.

China stocks jumped to their highest in more than seven months on Monday, led by property and financial shares, as investors bet that disappointing economic data for July would prod Beijing to unleash fresh stimulus.

But others are less bullish, noting that investor interest for mainland Chinese shares is likely to wane over time.

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