Shenzhen link seen to pack a bigger punch
Updated: 2016-10-04 09:42
By chai hua in Shenzhen(HK Edition)
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Compared to the Shanghai-Hong Kong Stock Connect, the upcoming equity link between the Hong Kong and Shenzhen bourses would exert a greater knock-on effect and is likely to attract more capital to the SAR, analysts believe.
Expectations of a strong performance of the second stocks trading link between the SAR and the Chinese mainland have been running high since Aug 16 when the China Securities Regulatory Commission and Hong Kong's Securities and Futures Commission announced the establishment of the new connect.
Stock investors on the Chinese mainland, in Hong Kong and worldwide will enjoy greater access to the Shenzhen stock market, which now hosts more small and medium-sized enterprises than the Shanghai bourse, as well as more technology-focused companies - seen as the next powerhouse of the world's second-largest economy.
Institutional investors will be able to trade all dual-listed shares and most of the Shenzhen Component Index's 500 members, as well as small- and mid-cap shares with a market value of more than 6 billion yuan ($904
million), according to data compiled by Bloomberg.
Hong Kong Exchanges and Clearing Ltd (HKEx) Chief Executive Charles Li Xiaojia last Wednesday confirmed that the long-awaited Shenzhen-Hong Kong Stock Connect will be officially launched in early November.
Brokers on both sides have been bracing for the new mutual stocks trading link after regulators published detailed trading rules on Friday.
In fact, brokers and investors have been expecting the second stocks trading link for about two years since the opening of the Shanghai connect in November 2014, which marked the start of China's mutual stock trading program that allows mainland and Hong Kong investors to buy and sell shares on each other's bourses.
With the Shenzhen-Hong Kong link revving up for its launch, the question being asked is whether it's the right timing. Many analysts have given a positive answer.
Ran Linghao, QDII (Qualified Domestic Institutional Investors) portfolio manager at Shenzhen-based Dacheng Fund, believed that the second stock connect will put up a better showing, thanks to its timing.
Besides, he noted, the stock valuation of the Hong Kong market currently is much lower than that of the A share market.
The stabilization of the mainland's economy and strong depreciation expectations of renminbi have propelled the net inflow of southbound capital into the Hong Kong market, he stressed.
Renminbi has depreciated more than 5 percent against the US dollar since August last year, according to mainland media reports, and investors have opted for more Hong Kong stocks to shun the volatility of the currency.
Therefore, Ran said, more mainland capital would be heading for Hong Kong, and that would make the new stock connect a convenient channel.
He added that signs of southbound capital entering the SAR market have surfaced following the formal approval announcement of the second stocks link. Net inflow of funds into the Hong Kong market through the southbound leg of the Shanghai-Hong Kong connect surged to 3 billion yuan per day on average last month - highest since the link's launch.
Total net inflow in September reached about 58.6 billion yuan, which is also the highest monthly amount so far this year.
However, the market has shown a lack of interest in the Shanghai-Hong Kong stocks link, with less than 40 percent of the 250-billion-yuan quota having been used within the first year of its opening.
The quota cap for both connects will be removed with the opening of the Shenzhen link, but a daily quota of 10.5 billion yuan on each stock connect will be maintained to cushion any market volatility.
Hannah Li Wai-han, a strategist at UOB Kay Hian Hong Kong, told China Daily that last month's inflow of funds was mostly stable and were for long- and medium-term investment, compared with the short-term funds at the start of Shanghai link.
Meanwhile, based on the 319 Hong Kong-listed stocks in the Shanghai-Hong Kong stocks cap, about 100 new stocks have been added to the new link.
HKEx chief Charles Li said earlier that mainland investors have now been offered more choices.
Li Wai-han said new economy stocks in the local market will attract many mainland investors.
Market gurus said many investors will be looking for opportunities in the H-share market, bolstered by the performance of mainland internet giant Tencent, which topped the Asian listed-firms market capitalization last month.
Besides mainland capital, international funds are expected to join the party against the current weak global economic environment.
Han Zhili, an analyst at Essence International Financial Holdings, said some international hedge funds will be attracted to Hong Kong following Britain's decision to quit the European Union, as well as the US Federal Reserve slowing down its pace of raising interest rates.
He said the speed of foreign capital entering the Hong Kong market has accelerated, judging from the strong performance of the effective exchange rate index of the Hong Kong dollar since June this year.
Some analysts doubt that foreign investors won't be interested in Shenzhen's ChiNext-listed stocks due to its high price-earnings ratio, which is as high as above 40 times.
Yang Delong, chief economist of Shenzhen-based Qianhai First Seafront Fund, said foreign institute investors would be interested in some Shenzhen-listed private companies.
Compared with the Shanghai market, which is dominated by State-owned enterprises, most Shenzhen stocks are from emerging industries, which is in line with the direction of development in the mainland's economic reform, he said.
grace@chinadailyhk.com
(HK Edition 10/04/2016 page5)