A trading link has been opened between the Hong Kong and Shenzhen stock markets on Monday. The news was overshadowed by the Italian referendum and Trump’s twitter rant criticising Chinese monetary and trade policies. Therefore, the opening of Shenzhen connect was met with silence from investors.
Non-Chinese investors have plunged 2.71 billion yuan into the Shenzhen market. The stock connect enables all investors to trade 881 shares listed in Shenzhen and allows mainland Chinese investors access to more Hong Kong stocks.
A similar link between Hong Kong and mainland China’s exchange was made two years ago. the previous connection was between Shanghai and the mainland. Conversely, the Shanghai connect was met with great enthusiasm, two-thirds of the daily quota of shares was reached in the first 45 minutes of trading.
The fast-growing Shenzhen market has flourished under predominantly private-owned enterprises. The lack of interest may be because there is a lack of investor knowledge. Analysts believe it is the largest market in the world that has yet to be exploited. Less than 1.2% of Shenzhen’s companies are owed by foreign investors which has limited the exposure of Shenzhen connect to the wider world.
However, Chinese markets will remain volatile as long as retail investors dominate institutional investors. Consequently, investors remain shy about entering such an uncertain market. The Shenzhen connect could be a step towards restoring investor confidence as the Chinese market moves towards more accessibility and transparency.