Shenzhen-Hong Kong Stock Connect

Written by Denis Suslov, James Peng || August 19 2016

Beijing has approved a new trading link between Shenzhen’s and Hong Kong’s stock markets to be opened by the end of the year. With the start of the Shenzhen-Hong Kong link, 880 companies will be added to the already available 567 through the Shanghai link that opened in 2014.

In combination, the Connects will cover over 70% of the mainland market. Globally, the extension of the Connect to Shenzhen will make China the second-largest equity market by market capitalization, and the largest by cash turnover.

The Connect will allow international investors to trade stocks listed on the Shenzhen Stock Exchange. Global fund managers will have a few months to become familiar with China’s retail investors before the link is opened in December. The Shenzhen-Hong Kong link should make a different impact than the Shanghai-Hong Kong one link when it opened up two years ago. The Southern city is home to many tech and start-up businesses, which are likely to attract funds from another investment strategies than stocks on Shanghai Stock Exchange, which is known to have large state-owned enterprises and financial firms. However, the investor reaction will likely be limited, because at this moment, international investors are still cautious with the existing channels to Chinese stocks.