Hong Kong-Shenzhen stock link to start in days as China opens up markets more

November 18, 2016 1:09 AM EST

A statue of a bull is displayed outside the Shenzhen Stock Exchange in the southern Chinese city of Shenzhen October 23, 2009. REUTERS/Bobby Yip/File Photo


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(Reuters) - A long-awaited stock trading link between Hong Kong and Shenzhen will go live in coming days, the CEO of Hong Kong's bourse said, further opening up China's capital markets to global investors and giving them access to some of its fastest growing companies.

With more than 1,800 listed companies that have a combined market capitalization of $3.3 trillion, the Shenzhen stock market is viewed by analysts as offering tremendous investment potential. HSBC, in fact, calls it the "largest untapped investment opportunity in the world".

But sky high valuations and wild swings in Chinese stock prices mean investment flows from Hong Kong into its northern neighbor could take time to materialize. On the other hand, as Chinese retail investors seek to diversify away from their home market and put their funds into assets in a stronger currency, Hong Kong may be a key beneficiary.

"Certainly I don't think you will see significant interest in the northbound part of the connect until you have greater optimism about the outlook for domestic equities," Richard Titherington, head of the Asia Pacific Equities team at JPMorgan Asset Management, told the Reuters Global Investment Outlook Summit in Hong Kong.

The launch of the so-called Shenzhen Connect scheme is expected "in a few more days," Charles Li, chief executive of Hong Kong Exchanges and Clearing Ltd <0388.HK>, said on Friday. The move expands an existing trading link between Hong Kong and Shanghai, allowing foreign investors to trade stocks directly in Shenzhen, the world's second-busiest exchange, from Hong Kong.

Speaking at the Shenzhen stock exchange in the first stop of a roadshow in mainland China to promote the trading link, Li urged Chinese investors to diversify their holdings with Hong Kong stocks and joked that with real estate prices in the city so expensive, shares may be a better bet.

"China residents have a lot of wealth and they need to preserve the value and add value to it, so they have to diversify their investments," Li said.

DELAYED START

The Shenzhen Connect had been expected to start more than a year ago, but was put on hold after a slump in the Shenzhen and Shanghai bourses, with stocks diving more than 40 percent and the government implementing a series of measures to prop up markets.

China approved the Shenzhen trading scheme in August.

Among HSBC's top recommendations to investors on Shenzhen-listed companies are Wanda Cinema Line Co Ltd <002739.SZ>, China's largest cinema operator, and Hangzhou Hikvision Digital Technology <002415.SZ>, the world's second largest maker of video surveillance cameras, the bank said a report this month.

For Chinese investors facing a weakening economy and currency, investing in mid-size Hong Kong-listed companies may be one way to offset the domestic downturn, investors said.

Investment flows into Hong Kong shares since the trading link with Shanghai was unveiled two years ago are nearly double the volumes from Hong Kong into China and the Shenzhen link means "strong southbound inflows" will continue, HSBC said.

"We do see pretty strong interest, at least from our client base, in investing in the Shenzhen-Hong Kong link," said Wang Ren, chief financial officer at China Minsheng Financial, the investment arm of China's largest private fund, at the Reuters summit.

"In the initial few days definitely we will see a pickup in volume, but it depends on the currency situation. People want to allocate more money offshore," Wang said.

(Reporting by Stefanie McIntyre; Additional reporting by Julie Zhu and Sumeet Chatterjee in Hong Kong; Writing by Elzio Barreto; Editing by Stephen Coates and Muralikumar Anantharaman)



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