The Hong Kong stock exchange. Photo: AFP / Anthony Wallace
The Hong Kong stock exchange. Photo: AFP / Anthony Wallace

The Hong Kong and Shenzhen stock exchanges will launch of the second cross-border share trading link on December 5, China’s securities regulator has announced.

Hong Kong’s Securities and Futures Commission and the China Securities Regulatory Commission have approved the launch after finalizing all necessary regulatory approvals and arrangements, the statement said.

The Hong Kong-Shenzhen Stock Connect system, which the exchange has been test running since the middle of last month, will allow international investors to trade 880 Shenzhen listed stocks via Hong Kong brokers, while mainland investors will be have access to 417 Hong Kong stocks.

The latest link follows the Hong Kong-Shanghai Stock Connect that was launch two years ago involving 568 Shanghai listed A-shares and 266 Hong Kong stocks.

Due to the link, mainlander fund flows are said to represent 10% of Hong Kong daily turnover while international investor traffic accounts for about 1% to 2% of Shanghai stock exchange trade.

Shenzhen Stock Exchange chairman Wu Lijun has been quoted in local media as saying the link will offer overseas investors exposure to “new-economy issuers offering a unique asset class of investment opportunities.”

The daily investment quota will be the same as that currently under Shanghai-Hong Kong Stock Connect – 13 billion yuan set for the northbound Shenzhen trading link and 10.5 billion yuan for the southbound Hong Kong trading link.

Under the arrangement, any money made by foreigners trading on the Shenzhen exchange cannot be invested further on the mainland, but will be returned to their Hong Kong accounts. Likewise, the proceeds of mainland investors selling their holdings in Hong Kong, will be transferred back to their accounts at China Securities Depository and Clearing Corporation.

“The expanded trading link will further strengthen mutual access between the mainland and Hong Kong stock markets. Similar to the arrangements for Shanghai-Hong Kong Stock Connect, the two regulators have established mechanisms to protect the integrity of both markets under Shenzhen-Hong Kong Stock Connect,” said Hong Kong’s Securities and Futures Commission chairman, Carlson Tong said.

Hong Kong Exchanges and Clearing chief executive Charles Li Xiaojia told Hong Kong media: “Both the Shanghai Connect and the Shenzhen Connect are pure investment tools, instead of tools that help capital outflow or inflow.”

The equity trading scheme was approved in principle in August this year.