Pundits Send Mixed Signals on Shenzhen-Hong Kong Connect
Yicai Global
/SOURCE : Yicai
Pundits Send Mixed Signals on Shenzhen-Hong Kong Connect

(Yicai Global) Aug. 17 -- After Premier Li Keqiang announced yesterday that the State Council had approved the'Plan for Implementing the Shenzhen-Hong Kong Stock Connect', analysts in multiple securities trading firms predicted its impact on Hong Kong shares will bemore marked than that of A shares.

In an interview with Yicai Global, Mr.Han Zhili, director of Essence International Institute predicted that, against the backdrop of yuan depreciation, an unclear market trend, and A shares' much higher valuation than Hong Kong stocks will all dampen any willingness to send capital north. "Since the second quarter of this year, that more capitals heading south than going north is evident. After the Shenzhen-Hong Kong Stock Connect opens, I anticipate better performance by Hong Kong shares."

Wang Hanfeng, an analyst with China International Capital Corp.,Ltd.[HK:3908] said that the high of the Hang Seng China Enterprise Index this year may exceed 9,900 points, and a trend in which Hong Kong stocks trump A shares still continues. The strategy team of Shenwan Hongyuan Securities believes that, to avert exchange rate risks, the enthusiasm of mainland investors to siphon capital southwards will be relatively high. Analysts in many security trading firms, however, estimate that the impact from the opening of the Connect on the trend of A stocks may be quite limited, and this will have a positive effect in improving the market's current risk appetite."The Shenzhen-Hong Hong Stock Connect will usher inonly limited incremental funds in the short term, and will only have little effect in driving the market," said Mr.Li Lifeng, chief strategic analyst at Sinolink Securities.

"The highlights of the Shenzhen-Hong Kong Stock Connect should be in opening financial markets and promoting yuan internationalization," said Mr.Han Zhili.

According to the joint announcement by the China Securities Regulatory Commission (CSRC) and the Hong Kong Securities and Futures Commission (SFC), the stock range of the Shenzhen-Hong Kong Stock Connect comprises the components indexes and the component stocks of small and medium innovation indexes of the Shenzhen Securities Exchange (SZSE) valued CNY6 billion or more, as well as the A+H corporate stocks listed on the SZSE. In the early period of its opening, investors trading in shares on the growth enterprise market via the Shenzhen-Hong Kong Stock Connect only comprise professional institutional investors, as defined by relevant Hong Kong rules.

No further total volume limits will be imposed on the Connect, since the daily volume limit is consistent with the present standards of the Shanghai-Hong Kong Stock Connect, i.e.its daily limit is USD2 billion (CNY13 billion), and the daily limit for the Hong Kong Stock Connect under the Shenzhen-Hong Kong Stock Connect is CNY10.5 billion. The Shanghai-Hong Kong Stock Connect has also canceled limits on total volumes.

Since the Shanghai-Hong Kong Stock Connect officially started trading on November 17, 2014, China's capital market has greatly progressed in internationalization, mainly including the exchange rate reform in 2015, the yuan's addition to the Special Drawing Rights (SDR) basket, and the mutual recognition of funds of mainland China and Hong Kong. All these factors impose heightened requirements on the two-way circulation mechanism of capital markets.

The CSRC said that the formal launch of the Shenzhen-Hong Kong Stock Connect still needs about four months' preparation.

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