Shenzhen Exchange Will Boost China’s Market Influence

The Shenzhen–Hong Kong Stock Exchange has become one of the dual channels through which mainland Chinese investors may have direct access to Hong Kong–listed stocks, joining the existing Shanghai–Hong Kong Stock Connect. The latest connection signals further integration of the two markets, extending China’s capital impact deeper into the Hong Kong market.

As of December 15, the “northbound” Hong Kong to Shenzhen trading volume amounted to HK$532 million (US$68.3 million); it was HK$1,766 million for traffic in the reverse direction.

With more Chinese investors showing interest in Hong Kong stocks, or H-shares, the stock connection program will no doubt significantly increase Chinese influence over the Hong Kong market.

Experts believe that characteristics of the Chinese stock market—such as domination by individual investors, higher daily fluctuation and significant state influence over the market mechanism—will spread into Hong Kong as more Chinese investors participate. Over the long run, the two markets will become more integrated and share more traits.

Following the US Federal Reserve’s rate hike in December, the market’s attention is now turning to the move’s impact on China’s debt and capital account positions, as the market impact will most certainly be imported into Hong Kong through the connection mechanism.