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Shenzhen opens stock market to the world, but is little noticed

SHENZHEN — Almost lost in the barrage of antagonistic tweets by US President-elect Donald Trump and the results of the Italian referendum was the opening up of China’s second-largest equity market to the rest of the world.

The new link will give foreign investors direct access to more than 800 stocks in China’s southern financial hub. Photo: Reuters

The new link will give foreign investors direct access to more than 800 stocks in China’s southern financial hub. Photo: Reuters

SHENZHEN — Almost lost in the barrage of antagonistic tweets by US President-elect Donald Trump and the results of the Italian referendum was the opening up of China’s second-largest equity market to the rest of the world.

The link between the southern technology hub of Shenzhen and Hong Kong had been expected ever since a channel with Shanghai started in November 2014, with speculation that last year’s stock market turmoil and accelerating capital outflows led to a delayed start date. Now, investors have access to a stock market that is larger by value than that in the United Kingdom, although trading is limited by quotas and other restrictions.

Shenzhen is often called China’s Nasdaq because it is the favoured destination of new economy companies that tap into the country’s fast-growing technology, consumer and healthcare industries. The new link will give foreign investors direct access to more than 800 stocks in China’s southern financial hub, while adding more than 100 smaller Hong Kong equities to the potential buy lists of mainland traders. It is all part of China’s effort to internationalise its currency, expand its citizens’ investment options and get mainland shares into MSCI’s benchmark global indices.

The Shenzhen Stock Exchange Composite Index ended 0.8 per cent lower yesterday while the Hang Seng Index lost 0.3 per cent. While the start of the link failed to lift the benchmark indexes in Shenzhen and Hong Kong, overseas investors purchased a net 2.7 billion yuan (S$559 million) through the connection, or about 21 per cent of the daily quota.

That is almost exactly the amount of Shanghai shares that foreigners sold in the two days through Monday, suggesting the new link — which offers access to smaller cap shares and privately-held technology firms — is sucking money from its bigger cousin in the north. BLOOMBERG

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