Shenzhen-HK Stock Connect Opens Up World’s Largest Untapped Capital Market to Foreign Investors

(YicaiGlobal) Dec. 7 — The Shenzhen-Hong Kong Stock Connect launched on Dec. 5. Chinese Premier Li Keqiang promised in May that the link would kick off before the end of the year. It comes nearly two years after the launch of Shanghai-Hong Kong Stock Connect, laying groundwork for a possible future integration of the three markets.

There are a number of reasons why the new Connect has launched at a time of ongoing domestic and global economic pressures. It is a testament to the determination of Chinese policy-makers to liberalize the country’s USD6.5 trillion capital markets. It is also an indication that Beijing is keen on attracting more international investment to mainland-listed stocks.

There is a good deal Shenzhen could offer to outside investors. It remains to be the largest capital market in the world virtually untapped by international money. Less than two percent of its USD3.4 billion market cap is believed to be held by foreigners.

It is Asia’s busiest exchange with monthly turnover of more than USD1 trillion. It also allows international investors to invest in China’s new economy as the shares of mostly tech companies with considerable potential for growth are traded on it. It also houses environmental, consumer-related and health sector companies which will be at the center of China’s transition to a consumer-based economy.

If the Shanghai-HK Connect is a frontrunner for internationalization of China’s A-share market, Shenzhen is the accelerator, which would increase the chances for it to be included in the MSCI’s Emerging Markets Index. As an executive of the Hong Kong Stock Exchange operator said, “you build a bridge for the next 20 years’ traffic, not only for next week’s.”