HKSE to Expect Creation of Trading Link with Shenzhen Counterpart

HKSE to Expect Creation of Trading Link with Shenzhen CounterpartThe Hong Kong Stock Exchange is expecting a trading link with its Shenzhen counterpart and to launch it during the second half of this year. Sources familiar with the matter stated that a timeline might undermine chances of being included in a major investor benchmark. Market watchers expected a landmark stock connect program that will link Hong Kong with Shanghai to extended to Shenzhen by June but will likely to start toward the end of the third quarter.

The stock connect link to Shenzhen is China’s equivalent to NASDAQ will allow foreign investors to trade the next generation of Chinese companies for the first time this including software, biotechnology and high tech stocks. Exchanges are being conducted with a feasibility study on links and should seek approval from relevant authorities once proposal is complete. Market watchers speculated that China will launch the Shenzhen link ahead of the annual June review of the MSCI in which hthe global index provider will decide whether to include China A shares in the Emerging Market Index, the global benchmark for emerging market stocks.

Creating a Shenzhen connect link will put pressure on other Asian markets such as South Korea and Singapore as investment will get diverted to the mainland if MSCI green lights China. Singapore stock market is now thinking of solutions to counter the stock connect link. Magnus Bocker CEO for Singapore’s Exchange hopes to emulate the stock connect link with Southeast Asia in a move that will promote cross border trading and to improve exchange liquidity.

Launching the stock connect between Shanghai and Hong Kong last November is regarded as a milestone of China opening up its stock markets which helped ease some of the investment constraints that led MSCI to keep China out during the annual review last year. Although it’s not clear is access is for Shanghai alone which is home to about 986 companies compared to 1600 in Shenzhen which is enough to mitigate MSCI concerns around liquidity. Launching Shenzhen will open up the market further and underline China’s commitment to liberate its equity market.

It is not clear, however, if access to Shanghai alone, which is home to around 986 companies compared with more than 1600 in Shenzhen, will be enough to mitigate MSCI’s concerns around liquidity. A June launch of Shenzhen would have opened up the market further and underlined China’s commitment to liberalize its equity market.

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