Why China Approved the Shenzhen-Hong Kong Stock Exchange Link

Shenzhen-Hong Kong stock exchange link

China’s State Council approved the long-awaited stock link between the Shenzhen and Hong Kong stock exchanges on August 16. “Preparatory work related to the Shenzhen-Hong Kong Stock connect is basically completed, and the State Council has approved a ‘Draft Plan for Implementation of the Shenzhen-Hong Kong Stock Connect,’” said, Premier Li Keqiang, the country’s top economic official.

Why China Approved the Shenzhen-Hong Kong Stock Exchange Link

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It may take another three months for actual trading to start. However, the exact opening date of the trading link was not specified in the statement. The Shenzhen Stock Exchange includes the shares of smaller technology and consumer-oriented companies, which are not popular with international investors. Thus, the trading link will increase investment opportunities for overseas investors.

One more step toward opening up China’s financial markets

The Shenzhen-Hong Kong stock exchange link was delayed due to China’s stock market crash last year. A similar trading link between the Shanghai and Hong Kong stock markets was launched in November 2014. It allowed foreign investors to invest into China’s A-shares and domestic investors to trade Hong Kong–listed shares.

“Based on the success of the Shanghai-Hong Kong link, the launch of the Shenzhen-Hong Kong link marks a concrete step toward making Chinese capital markets more law-based, market-oriented and globalized,” said Premier Li Keqiang.

Investment impact

The Shenzhen Composite Index gained 3.2% from August 12 to August 16. Meanwhile, ETFs such as the Deutsche X-trackers Harvest CSI 300 China A-Shares ETF (ASHR) rose 3.4%, and the iShares MSCI China ETF (MCHI) rose 1.5% for the same period. These funds invest in the ADRs (American depositary receipts) of Tencent Holdings (TCEHY), Alibaba Group Holding (BABA), and NetEase (NTES).

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