Shares rally after plan for Shanghai and Hong Kong exchanges given the green light

The go-ahead of the Shanghai-Hong Kong Stock Connect program sent share prices in the two exchanges soaring, as stockbrokers and investors were excited that the long wait for the program was over.

STOCK CONNECT'S START DATE SET The Shanghai-Hong Kong Stock Connect will be launched on Nov 17, according to a joint statement released by the China Security Regulatory Commission and the Hong Kong Securities and Futures Commission on Monday. The stock connect plan was proposed by Premier Li Keqiang on April 10 during a speech delivered at the opening ceremony of the 2014 Boao Forum for Asia. Li said then that efforts will be made to pave the way for the building of a Shanghai-Hong Kong stock market trading mechanism to promote healthy, two-way development between the mainland and Hong Kong capital markets. The joint declaration in April by the main land and Hong Kong regulatory authorities about setting up the stock connect program was made with in three hours after the premier proposed the launch of the mechanism. Hong Kong Secretary for Financial Services and the Treasury Chan Ka-keung said the stock connect mechanism had been researched for several years and the premier's endorsement brought it to fruition. Chinese media praised the mechanism as a "premier strategy" for the capital market that will further promote China's reform and opening-up.

Bullish sentiments about the stock connect, which will begin operations next week, sent the bench mark Shanghai Composite Index up 2.3 percent and the Hang Seng Index up 0.83 percent on Monday. Blue chip shares, including steel, airways and airports, highways and distillers, led the rally in Shanghai.

Analysts said that the program, proposed by Premier Li Keqiang in early April, holds great promise for unprecedented business opportunities for institutional and retail investors in both cities. The stocks of the Hong Kong Stock Exchange and numerous stock brokerages have outperformed the market.

Meanwhile, Hong Kong's secretary of the Financial Services and the Treasury Bureau, Chan Kakeung, said that Hong Kong will initiate talks with the Shenzhen bourse to establish a similar link. Unlike Shanghai, Shenzhen is known for the listings of many small to medium-size private sector companies.

The China Securities Regulatory Commission and the Securities and Futures Commission of Hong Kong said on Monday that all rules regarding trading and clearing had been approved by regulators.

With the stock connect in place and ready to launch on Nov 17," both Shanghai and Hong Kong will enter a structural bull phase. The big caps on the As hare market are very attractive to off shore investors with their low valuation and market liquidity," Wendy Liu, head of China equity research at Nomura, said in Hong Kong.

The highly liquid Hong Kong stock market and the many share related derivatives products will make the stock connect most attractive to mainland investors, she said.

Yim Fung, chairman and CEO of Hong Kong-based Guotai Junan International, said: "I guess many people sighed with relief since the start date is for certain now."

The stock connect, an affirmation of Hong Kong's role in financial reform on the mainland, was widely considered to be an important way to increase cross-border capital flow, further open up China's capital market and move for ward with the yuan's internationalization.

Yim said his company had raised about 2 billion yuan ($327 million) in September through rights issue, and this fund will be used in the stock connect business.

"(The stock connect) program is offering global investors direct access to blue chips in Shanghai, and as many blue chips are cheap now, I believe the northbound investment (to Shanghai) will be more active from the beginning, "he said.

Off shore investors have been keenly looking forward to this program. Up till now, these investors have had to rely on the much more restricted and license-based Qualified Foreign Institutional Investors and Renminbi QFII programs to invest in A shares.

Stock exchanges in the two cities will begin trading through the program, which allows a net 23.5 billion yuan a day in cross-border purchases and has no license requirement.

Although details including tax policies still need to be clarified, Chan, the Financial Services and Treasury Bureau secretary, said the authority will announce them "within a very short time".

Expecting a strong demand for yuan once the program starts, many Hong Kong banks are offering attractive terms to secure yuan deposits. At least eight banks in the city have raised their yuan deposit rates or extended their promotional offers.

Li Xiang and Cai Xiao contribute to the story.

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