Shenzhen-HK connect ready to go

The securities regulators of the Chinese mainland and Hong Kong on Friday announced that the much-anticipated Shenzhen-Hong Kong Stock Connect program will officially launch on December 5, a step to further liberalize the mainland's capital market.

The stock trading link, similar to the existing program between Shanghai and Hong Kong, will allow overseas investors to trade stocks on the Shenzhen Stock Exchange. Mainland investors will also have greater access to the Hong Kong stock market.

The launch of the trading link, a timely move by the regulators, underscored policymakers' desire to continue to open up the Chinese capital market against the backdrop of a weakening currency and rising uncertainties in the global economy, analysts said.

"With Trump elected (as US president) and the yuan facing depreciation pressure, the opening up at this stage shows the regulators' strong confidence in the reform and future performance of the Chinese economy, as well as their strong determination to open up the mainland's capital market," said Cheng Shi, executive director and head of research at ICBC International Research.

In their joint statement on Friday, the regulators of the mainland and Hong Kong said arrangements for transaction settlement, investment quota management and technical preparations for the new trading link were well in place.

The regulators also vowed to strengthen cooperation in cracking down on illegal cross-border market activities.

The regulators in August removed the total investment quota of 550 billion yuan ($80 billion) for the trading link. But there will still be a daily quota of 13 billion yuan for overseas investors to trade Shenzhen-listed stocks. Mainland investors can trade up to 10.5 billion yuan of Hong Kong stocks under the new trading program.

Hong Hao, chief strategist at BOCOM International, said the new program may help boost the value of small and mid-cap stocks with good earnings, given that the Shenzhen market is known as the home of many high-tech and innovative Chinese companies with promising growth potential.

But he warned that much of the good news could already be reflected in the current stock prices, and trading risks could rise in the short term, given that the US dollar will continue to strengthen. This could be negative for asset prices in the Asian markets, he added.