China to kick off Shenzhen-Hong Kong stock connect in 2015, earlier than previously expected
The Shenzhen-Hong Kong stock connect will be launched this
year despite widespread market expectations it would be delayed to 2016, the
governor of the People’s Bank of China said on Wednesday.
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Xie Yu, Jing Yang and Benjamin Robertson
04 November 2015
The Shenzhen-Hong Kong stock connect will be launched this year despite widespread market expectations it would be delayed to 2016, the governor of the People’s Bank of China said on Wednesday.
Zhou Xiaochuan said in an article on the PBOC’s website the Shenzhen-Hong Kong stock connect will begin “within this year” and that it showed “China opens up a new channel to connect the global capital markets.”
The Hong Kong stock exchange declined to comment when contacted by the SCMP.
Zhou’s comment took the market by surprise, as many investors were expecting a delayed kick off, especially after the market rout hit China in June.
A key industry source very familiar with the progress of the scheme said that market regulators the China Securities Regulatory Commission is still working on the scheme and is not prepared to issue a timetable to roll out the arrangement.
Another source, a senior analyst with a state-owned brokerage, said Zhou’s position made it “highly possible” for the scheme to begin before the end of 2015, regardless of the CSRC’s attitude.
“Zhou Xiaochuan is absolutely more close to the party’s core deciding body, while the CSRC is marginalized,” he said.
The stock-connect schemes are part of a larger reform agenda to internationalise the renminbi, said Erwin Sanft, chief China strategist at Macquarie.
“The connect programmes are symbolic of the internationalisation of the Chinese currency. The Shanghai-Hong Kong stock connect wasn’t a CSRC initiative, but from a more senior level of government,” said Sanft, who in September predicted that the Shenzhen connect would kick off by year-end when the market believed it would slip through to early next year.
“The drivers of reforms in China are the likes of the Ministry of Finance and the PBOC, which are more senior, powerful entities. They have been, since the beginning of the year, and continue to be, drivers of financial reform and deregulation. They also didn’t take active roles in the stock market intervention,” he said.
Sanft said that Shenzhen-listed stocks will supplement the offerings by the Shanghai bourse.
“Shenzhen provides a more interesting part of the A share market, privately owned, better growth profile, and members of the new economy such as technology. Those features will especially appeal to US investors.”
Launch of the Shenzhen connect will also give the Hong Kong stock exchange a window to expand the eligible lists to include the Hang Sheng Small-Cap Index constituents.
Currently, the Shanghai connect covers only large and mid cap stocks.
“A lot of mainland investors are more interested in the small-caps. I believe the revised eligible lists will be incorporated in both Shanghai and Shenzhen programmes,” Sanft explained.
China started the Shanghai-Hong Kong stock connect in November 2014.
Chinese and Hong Kong equities have had a roller coaster year, scaling a 7-year peak in June before a rout forced the government to massively support shares in both Shanghai and Shenzhen, leading to expectations the connect scheme with Shenzhen will not be launched in 2015.
Zhou gave the comments in a long article published on the PBOC’s website as he urged the staff with the central bank to follow the party’s leadership and to strengthen financial reform and innovation.
Shares in Hong Kong and China were given a boost by the news.