- PBOC's Zhou Xiaochuan writes in an online post on Tuesday
- Timing a surprise to investors who expected start next year
China’s central bank said an exchange link between Shenzhen and Hong Kong will start this year, easing concern that a $5 trillion selloff would delay efforts to open up the world’s second-largest stock market.
People’s Bank of China Governor Zhou Xiaochuan signaled a 2015 start date in a lengthy article on the need for Communist Party discipline that appeared on the PBOC’s website Tuesday. While the timeline hasn’t yet been confirmed by securities regulators in China or Hong Kong, Zhou’s comments ignited rallies on both sides of the border. The Hang Seng Index advanced 3.2 percent, while Hong Kong Exchanges & Clearing Ltd. soared 8.9 percent and the Shenzhen Composite Index climbed 3.3 percent.
An expansion of Hong Kong’s bourse link to Shenzhen, after a similar program with Shanghai started last November, would come as a surprise to many investors who had anticipated a delay. Ten of the 13 respondents in a Bloomberg survey in September predicted the Shenzhen connect would start next year as authorities focused their efforts on stabilizing the mainland share prices after a rout that dragged the Shanghai Composite Index down as much as 43 percent from its June high.
“This is going to happen sooner rather than later,” said Gavin Parry, managing director of Parry International Trading Ltd. “It will hopefully increase volumes and give Hong Kong more of a focus point of access to the mainland via connect systems. It will help cement Hong Kong as the gateway.”
HKEx in November 2014 started the Stock Connect program with the Shanghai exchange, allowing investors to directly access the largest companies traded in both markets. Since then, officials have been reviewing plans to expand the link to Shenzhen. MSCI Inc. has said that giving foreigners more access to China’s second-largest equity market, home to many of its small technology companies, is key to getting the nation’s stocks included in global benchmark indexes.
“As we accelerate the nation’s opening of trade and investments, we need to speed up the opening of the financial sector," Zhou wrote in the article. “This year the Shenzhen-Hong Kong connect will be launched; this will show a new channel between China’s capital markets and the world has opened."
Signs of stabilization in Chinese markets may give authorities more confidence to push forward with the link. The Shanghai Composite surged 11 percent in October, one of the biggest gains worldwide, amid signs of buying from ordinary investors, rather than the government-run funds who sought to prop up prices during the rout. Margin debt rose last month for the first time in five months, volumes have picked up and companies favored by individual investors are leading the rebound.
Scott Sapp, a spokesman for Hong Kong’s exchange, declined to comment. A spokeswoman for the Shenzhen exchange said she couldn’t immediately comment.