China's State Council on Tuesday approved plans to launch the Shenzhen-Hong Kong Stock Connect program, which will open the door for foreign investors to buy shares in the country's biggest pool of private, small-cap growth companies.
The announcement on the Chinese government's official website didn't provide a precise date for the launch, which will come more than a year and a half after the Shanghai-Hong Kong Stock Connect provided foreign investors with some access to China's other major stock market.
Foreign analysts predicted the Shenzhen-Hong Kong connect will begin within three to six months, removing yet another obstacle to global index providers — such as MSCI and FTSE — including an initial fraction of China's domestic A-shares market to their respective global emerging markets indexes.
“All else equal, Shenzhen Connect should move China further along the road to MSCI inclusion and we see this announcement as a significant catalyst for Chinese markets, particularly at a time where fundamental strength and industrial profitability is building,” said Douglas Morton, Northern Trust Capital Markets' head of research, Asia, in an e-mailed research note.
In a separate note published Tuesday, East Capital International said the program would open “one of the most attractive pools of investment opportunities in the world” — an actively traded $3.4 trillion market representing the most “innovative and dynamic part of ‘China Inc.’” — to overseas retail and institutional investors.