The launch date for the Shenzhen-Hong Kong Stock Connect has been confirmed as December 5, with Chinese insurance firms and foreign hedge funds tipped as key early users of the trading link.
The Chinese Regulatory Securities Commission (CSRC) and Hong Kong's Securities and Futures Commission (SFC) announced the date around 7pm local time today, saying they had finalised the approvals and arrangements.
The move is another step in the rapid opening up of China's capital markets. It will allow trading of the technology-heavy equity market in Shenzhen via the Hong Kong exchange, and of Hong Kong stocks via the Shenzhen bourse.
Steven Sun, head of China and Hong Kong equity strategy at HSBC, expects the new link to double the daily turnover quota of the Connect programme, including Shanghai, to Rmb26 billion ($3.76 billion).
Chinese insurer interest
Mainland insurance firms are one group expected to take full advantage of the scheme, since Hong Kong equities bought through the Connect do not count towards the 15% cap on their overseas allocation.
Therefore Shenzhen Connect can free up their qualified domestic institutional investor (QDII) quotas and allow them to invest in other foreign assets, said Janet Li, director of investments for Greater China at Willis Towers Watson. It allows them them room to outsource more to overseas fund managers, she added.
Likewise, Sally Wong, chairman of the Hong Kong Investment Funds Association, said she expected mainland insurers to use the new link for their foreign allocations.
Strong northbound (Hong Kong to China) flows are also anticipated.
Foreign investors are likely to switch stocks held via their QFII quotas to Shenzhen Connect, said Tony Cheung, head of quant analytics for Asia Pacific at institutional trading venue Liquidnet. This pattern played out two years ago when the Shanghai scheme launched, he noted.
For instance, hedge funds have shown interest in using the Connect to trade Shenzhen stocks, said HSBC's Sun during a press conference on Monday (November 21).
Meanwhile, US institutional investors, including endowment funds and trust banks, have started to show more interest in using the Shanghai scheme, he added. HSBC met 17 US institutions during the a roadshow earlier this month.
In a research report, Sun also argued that the Shenzhen Connect strengthened the case for index provider MSCI to include A-shares in its emerging-market benchmarks. However, as Henry Fernandez, chief executive of MSCI has pointed out, there remain other outstanding issues to overcome before the eagerly awaited inclusion can happen.
The Shenzhen Connect had initially been forecast to launch in November, after the CSRC and SFC said in mid-August that they had given the Shenzhen Connect the green light. The four-month period before launch was designed to give securities firms four months to prepare.
But global volatility since the November 8 election of Donald Trump as US president has been widely blamed for delaying the launch. In recent weeks, December 5 and 12 had been widely mooted for the go-live.
The move will come two years after the initial Shanghai link launched on November 17, 2014. It will allow trading of the technology-heavy equity market in Shenzhen via the Hong Kong exchange, and trading of Hong Kong stocks via the Shenzhen bourse.
The Shenzhen link will have two key differences from its Shanghai counterpart: no aggregate limit on trading volume, and exchange-traded funds (ETFs) will be included next year. The inclusion date for ETFs will be announced after the link Connect has been live for a period and has satisfied certain conditions.
The daily volume caps will be the same as for the Shanghai Connect – Rmb13 billion ($1.97 billion) for the northbound leg and Rmb10.5 billion for the southbound.