China has set a deadline of this year to link trading between the Shenzhen stock exchange and the Hong Kong market, the central bank chief said, following a similar connection with the Shanghai bourse. China launched a landmark "stock connect" between Shanghai and its special administrative region of Hong Kong in late 2014, opening up its closeted share market to the outside world and giving foreign investors access to Chinese companies not quoted elsewhere.
Trading through the Shanghai-Hong Kong link was initially lacklustre, although it later picked up during a huge rally in Chinese stocks before a bubble burst. "The Shenzhen-Hong Kong connect will be launched this year, which shows China's capital market opening a new route to link with the world," Zhou Xiaochuan, head of the People's Bank of China, said in an article posted on the PBoC website on Tuesday.
The southern boom town of Shenzhen borders Hong Kong. As China's second exchange, its bourse mainly trades small companies and technology stocks. But the PBoC later updated the posting, clarifying that the article was based on an internal speech that Zhou delivered in May - before the stock market bubble popped in June. The Hong Kong exchange said in a statement the proposal was still subject to regulatory approval and no agreement had been entered into.
Still, investors cheered the news on Wednesday. The Shenzhen index surged 5.12 percent and the Shanghai market jumped 4.31 percent, helped by hopes for economic reforms and the market linkage. "This is giving a big psychological boost to the Chinese stock markets," Ronald Wan, Hong Kong-based chief executive officer at Partners Capital International, told Bloomberg News.
"But optimism may wane soon, given what has happened to the Hong Kong-Shanghai Connect," he said. The Shanghai-Hong Kong Stock Connect, which allows the equivalent of $3.8 billion a day in cross-border transactions, enables international investors to trade selected stocks on Shanghai's tightly restricted exchange and lets mainland investors buy shares in Hong Kong.
Chinese Premier Li Keqiang said in March the country would launch a connect programme between Shenzhen and Hong Kong "at an appropriate time" in a push for financial reforms, but gave no timetable. The launch of the scheme was widely expected to be delayed after the plunges in Chinese stocks shook global markets. The benchmark Shanghai index is down more than 30 percent from its June peak.