Stock Connect Programs Shenzhen-Hong Kong Stock Connect (approved on 16 August 2016)
Shanghai-Hong Kong Stock Connect (established 2014)

The Stock Connect programs are securities trading and clearing arrangements that link China's mainland stock exchanges to that of Hong Kong.

The pilot program between Shanghai and Hong Kong was set up in 2014 and the Shenzhen/Hong Kong program will follow later this year.

The programs allow mainland investors to trade and settle shares in the Hong Kong market via their local exchanges, and vice-versa.

The Stock Connect initiative further opens China's capital markets to international investors by providing access to mainland-listed A-shares and allows domestic investors to access stocks listed outside the Mainland. The Shenzhen-Hong Kong Stock Connect program is the latest step in the liberalization of China's capital account.

Shenzhen-Hong Kong Stock Connect (approved on 16 August 2016)

Time to reduce exposure despite long-term trend of southbound fund flow

UBSS H-share strategist, Wenjie LU

The Stock Connect programme now accounts for 10-11% of Hong Kong stock market turnover. Including other flows from qualified domestic institutional investors (QDII) and unofficial vehicles, UBS estimates mainland investors accounted for 16-18% of Hong Kong stock market turnover in recent weeks, and about 12% year-to-date.
UBS believes southbound fund flow will be sustainable long-term

Southbound fund flow should be sustainable owing to widespread participation of institutional investors, persistent CNY depreciation pressure, and the dearth of assets in onshore markets. Moreover, financial regulators recently appear to be more confident in managing capital outflows.
"We believe policymakers may encourage a reasonable pace of outbound investment in the next few quarters to help contain the domestic asset bubble, especially the overheating property market," said Wenjie Lu, UBSS H-share strategist.

  • UBS's model suggests Rmb160bn in southbound inflow to Hong Kong in 2017
  • Southbound trade could be a very positive driver of the H-share market in the next 2-3 three years.
  • Four key contributors to the southbound trade:
    1. Insurance companies
    2. Mutual funds
    3. Hedge funds and high-net-worth individuals (HNWIs)
    4. Mass market retail investors

China approves Shenzhen-Hong Kong Stock Connect; Positive outlook on Chinese equities

Bin SHI, Portfolio Manager, China Equities, UBS Asset Management

China approves Shenzhen-Hong Kong Stock Connect

  • It is a significant milestone in China's efforts to open up the A-share market to global investors, and increases the probability of A-share inclusion in MSCI indices
  • The link between Shenzhen and Hong Kong should start in about 4 months.
  • The daily quotas remain in place (Rmb13bn Northbound and Rmb10.5bn Southbound per market (Shanghai (SH) & Shenzhen (SZ)). 
  • The aggregate quotas in both directions are abolished indicating further capital account liberalization.
  • It is a positive development for the Hong Kong (HK) stock market.
  • Both SH-HK and SZ-HK Stock Connect links could represent a significant share of HK daily trading volume.
  • Hong Kong listed small cap companies are trading at much lower PE multiples, compared to the Shenzhen listed Small/Mid-cap A-share stocks.

Chinese equities: positive outlook

  • Valuations for Chinese equities look attractive from a long-term growth perspective.
  • The asset rotation into EM should also benefit Chinese equities.  

As the economy rebalances, GDP growth is slowing down. But there are still interesting opportunities for investors, in particular, in the new economy sectors.

Limited impact expected from Shenzhen-Hong Kong Stock Connect on listed brokers' earnings

Ting GAO, Head of China Strategy at UBS Securities

The CSRC and the SFC signed a joint announcement on 16 Aug 2016 regarding the Shenzhen-Hong Kong Stock Connect. Gao Ting states that policymakers have shown confidence to manage cross-border fund flow, as well as their intention to curb speculation on very small companies. Yet, limited impact is expected from on listed brokers' earnings. Please see attached for further details.

中國證監會與香港證監會於八月十六日共同簽署深港通《聯合公告》。 瑞銀證券中國首席策略分析師高挺認爲,監管層顯示出了管理好跨境資金流動的信心和抑制對小市值股票投機炒作的决心。瑞銀證券證券行業分析師預計深港通對內地上市券商業績影響很小。其他主要觀點,請參閱附件。

Shenzhen-Hong Kong Stock Connect: a Very Welcomed Move

Wenjie LU, H-share Strategist, UBS Securities

Wenjie discusses with Bloomberg TV the Shenzhen-Hong Kong stock connect and what this means for the markets and for Hong Kong View the video on Bloomberg.

Global investors expected to cast for opportunities in former fishing village

Roger XIE, Equity Strategist, UBS CIO Wealth Management

The opening of the mutual market access scheme, Shenzhen-Hong Kong Stock Connect, which is widely expected to take place later this year, will provide global investors with their first direct access to China's fastest-growing and best-performing market.

With a strong culture of innovation, Shenzhen, a fishing-village-turned-megacity, is home to some of China’s most successful technology companies. Its bourse, the Shenzhen Stock Exchange (SZSE), has emerged as an important pillar for the mainland stock market, accounting for roughly half of the total A-share market capitalization. Indeed, the SZSE has consistently grown faster and delivered better returns than Shanghai for the past decade.

In his report 'Shenzhen Stock Exchange to go global with Stock Connect Launch', UBS Chief Investment Office strategist, Roger Xie, (CIO) argues that the launch will prompt major index providers, such as the MSCI, to include A-shares in their flagship emerging market indices. A decision is expected in June 2016 and, if positive, Xie believes fund inflows could start as early as the middle of next year.

Shenzhen's new economy - information technology, green energy, biotechnology, high end manufacturing, new materials, new energy vehicles and media - is likely to be a major beneficiary from foreign investment.

The SZSE introduced an SME board in 2004 and a separate board for tech start-ups in 2009. As a result, Shenzhen now offers a multi-tiered capital market consisting of a main board, the SME board, and the ChiNext board which, collectively, serve companies at different stages of development and offer investors opportunities for portfolio diversification.

Xie expects the regulator to set a quota for Shenzhen-Hong Kong southbound trades to an annual aggregate net balance of around CNY 250bn, similar to that of the Shanghai-Hong Kong Stock Connect.

"We also expect more stocks to be made eligible for the Shenzhen program than there are for its Shanghai counterpart, thus enlarging the investment universe for southbound trades. It is possible that the daily trading quota will be relaxed as well," said Xie.

Eight things you did not know about the Shenzhen Stock Exchange

  • It has a market capitalization of US$3 trillion making it the world's fifth largest exchange.
  • Its average daily stock exchange turnover of US$80 billion is the third-largest globally.
  • Turnover velocity (value of shares traded relative to market value) of 6.1 times during 2015 is the highest of any global stock exchange.
  • In 2015, total M&A deals involving Shenzhen-listed companies increased to 985 from 702 in 2013. 
  • The Shenzhen market has been the top performer among global stock markets for the past five years. 
  • The SZSE focuses on small and mid-cap stocks (73% of total market capitalization – versus 41% in Hong Kong and 39% in Shanghai). 
  • Listed companies that possess no state shareholding account for 70% of Shenzhen's market capitalization, versus 27% in Hong Kong and 40% in Shanghai. 
  • A large proportion of Shenzhen's market cap is comprised of new economy sectors, including, information technology (21%) consumer discretionary (17%) and healthcare (9%).

Shenzhen-Hong Kong Stock Connect to offer new opportunities

Ting GAO, A-share strategist, UBS Securities

Officials of the Chinese Government have recently indicated that the Shenzhen-Hong Kong Stock Connect program will open in 2016.

Offering new access to 505 stocks in Shenzhen and an additional 218 stocks in Hong Kong, the new program is the latest step in the opening up of China's capital account. The result of this expansion means that over 70% of the A-share market capitalization and 84% of the Hong Kong market's capitalization will be mutually open.

Access to the Shenzhen market will allow international investors greater exposure to China's healthcare, information technology, consumer and materials sector.

Shenzhen differs from its Shanghai counterpart in that it offers more small-cap stocks, in higher-growth sectors and outside the non-state-owned enterprise sector.

In recent years, the valuations of Shenzhen-listed stocks have outstripped those in Shanghai. In light of the much higher valuations currently priced into Shenzhen stocks, UBS believes demand for Shenzhen-listed stocks immediately after the launch of the program may be muted.

The advent of the Shenzhen-Hong Kong Stock Connect is expected to expand the eligibility of small cap stocks in Hong Kong. Such Hong Kong issuers were not included in the original Shanghai-Hong Kong Stock Connect.

Earlier this year, southbound trade surpassed northbound flow in the Shanghai-Hong Kong Stock Connect. Also, according to the Hong Kong Stock Exchange, mainland investors almost doubled their weighting in Hong Kong stock trading to 9% in 2015. UBS expects that the new Shenzhen-Hong Kong Stock Connect will further propel southbound trade.

Valuations of Hong Kong's small-cap stocks currently stand at a 16 times price/earnings ratio, compared to 72 times for similar stocks in China. In light of large discrepancy, UBS analysts expect the new program to offer opportunities in mid-/small caps with high growth and much lower valuations to southbound investors.

深港通 – 时移境异,涌现新机

瑞銀證券 H 股策略分析師 陸文杰



Shanghai-Hong Kong Stock Connect (established 2014)

Hong Kong shares rocket as mainland rally spills over - RTRS

Wenjie Lu, Strategist, China Equity (H-Share)

"The current huge valuation gap and the excessive liquidity in mainland funds is raising interest in Hong Kong stocks," said UBS strategist Lu Wenjie, noting Chinese small-caps trade at around 100 times earnings on average, compared with just 10 times for Hong Kong peers.

The mainland market is now seen as bubbly without growth, while Hong Kong has value but lacks liquidity, he said.

Chinese stocks up on better-than-expected PMI survey; HK plays catch-up

Wenjie Lu, Strategist, China Equity (H-Share)

Increasing risks in the ChiNext and the huge valuation gap between China and Hong Kong would lead more mainland investors to invest in Hong Kong stocks, said Lu Wenjie, a strategist at UBS.

Stock Connect two-way trading picks up, mutual funds encouraged

Wenjie Lu, Strategist, China Equity (H-Share)

“We do not expect the southbound Stock Connect trade to turn active immediately. However, we think the policy stance of CSRC will entice local investors to enter the Hong Kong equity market, since A-shares are now at a bubble stage,” said Lu Wenjie, H-share Strategist at UBS Securities (UBSS), to GlobalRMB.

In this one-page fact sheet on Stock Connect Program, UBS shares with you on how big it is, investors' largest concerns, the potential impacts on China A-share market, and why we should invest in A-shares.

Matthew Gilman - Understand China corporate behavior



瑞银中国证券业务主管夏阳表示:“沪港通的启动是中国金融业发展进程及资本市场开放的里程碑 。这项机制将大幅提高海外投资者对中国股票市场的参与,使海外投资者得以投资市值达3.9万亿美元的A股市场。”


Stock Connect set to buoy use of more financial instruments

Thomas Fang, Head of Greater China Derivative Sales and Head of Intermediary Sales, Asia, Equity Derivatives Sales

"Once a market is opened for both institutional and individual investors, one can expect an increase in demand to hedge, to preserve capital, to lift leverage and to enhance yield". Thomas Fang, Head of Greater China Derivative Sales and Head of Intermediary Sales, Asia, Equity Derivatives Sales, shares with China Daily on how the Stock Connect arrangement looks set to create favorable conditions for derivative products with underlying A-share assets.

Matthew Gilman - Understand China corporate behavior

Stock Connect Program brings opportunities to China and Hong Kong-based brokerage houses

Xia Yang, Head of China Equities, UBS Securities
夏陽 瑞銀證券中國證券業務總監

Xia Yang speaks at UBS Mutual Market Access Conference 2014. The launch of Stock Connect Program provides China and HK-based international banks and brokerage houses opportunities to offer their global clients access and knowledge to the A-share market and products. China-based local brokerage houses.

夏陽在瑞银证券沪港通策略研讨会2014指出,国际投资者对中国A股市场的需求一直都很强烈,滬港通的推出令他们对中国的配置得到进一步的满足, 对券商也带来契机。

Understand China corporate behavior

Matthew Gilman, Director, APAC Equity Strategist, UBS

Understanding the differences and challenges of China corporate behaviour will be key for new A-share participants. Although rules & regulations are similar, international investors may face challenges in corporate communication, access, guidance and governance, as we outline in this video.

UBS Mutual Market Access Conference 2014 takes place on 22 September in Shanghai

Monday, 22 - Tuesday, 23 September 2014
Pudong Shangri-La, Shanghai
33 Fu Cheng Road, Pudong
Shanghai 200120, China

UBS Mutual Market Access Conference 2014 website

Shanghai-HK Stock Connect Program - a world of opportunity 

Yonghao Pu, Regional Chief Investment Officer, Northern APAC, UBS Wealth Management

Shanghai-HK Stock Connect Program offers a wealth of opportunity should the price and valuation gap of some dual-listed stocks converge. The program also offers investors from both Hong Kong and China access to unique sectors and themes, at present, unavailable in their local stock markets.

Understanding the market impact of the Stock Connect southbound trade

Wenjie Lu, Strategist, China Equity (H-Share)

It is a common perception that unique to Hong Kong HK stocks, such as Macau gaming and Hong Kong property, as well as cheap stocks will benefit from Stock Connect southbound trade. We believe that this view misunderstands truly what the Chinese investor is truly interested in pursuing.

MMA the A-share investor

Matthew Gilman, Director, APAC Equity Strategist, UBS

Stock Connect Program increases the need for investors to understand what drives A-shares and who A-share investors are. The dominance of individual investors translates into big behavioral differences which are outlined in the video. It is crucial for A-Share investors to understand their implications.

China Keys - SOE reform: a significant re-rating catalyst

Wenjie Lu, Strategist, China Equity (H-Share)

SOEs make up around 65%/80% of the A-/H-share market caps respectively. Despite continuing SOE reform, SOEs continue to trade at a significant discount Unlocking their potential, could be a significant re-rating catalyst.

MMA Primer

Matthew Gilman, Director, APAC Equity Strategist, UBS

Stock Connect Program between the Shanghai and Hong Kong stock exchanges is due to launch around October, opening up the $3.9 trillion China A-share market to international investors. We outline the key elements of the scheme and a number of reasons to invest in A-shares.

How does the Shanghai clearing system differs from HK?

Date: September 2014 | Document

Xia Yang, Head of China Equities, UBS Securities

夏陽 瑞銀證券中國證券業務總監


China market access - a watershed for Asian equities

Min Lan Tan, Asia Pacific Head, Chief Investment Office, UBS Wealth Management

The Asian equity market will witness a watershed event in the next couple of months when China opens up a link that will allow foreign investors to participate directly in the domestic equity market, and domestic investors to do the same in a foreign market.

After Hong Kong, Singapore and Taiwan hold the largest amount of renminbi deposits. Considering the sensitive political ties between China and Taiwan, Singapore would be the most likely candidate for the MMA's overseas expansion. 

Min Lan Tan, Asia Pacific Head, Chief Investment Office, UBS Wealth Management - China market access - a watershed for Asian equities

Shanghai Link to offer investors a new play on China

"I do believe the gap between A shares and H shares, especially for the dual-listed companies, will compress in the short term," Chen Li, Head of China Equity Strategy, UBS Securities tells Institutional Investor.

Yonghao Pu believes the impact of MMA will be incremental rather than abrupt

Pu Yonghao, chief investment officer for Asia Pacific at UBS Wealth Management, talks about China's stocks, economy and government policies. He speaks with Rishaad Salamat on Bloomberg Television's "Asia Edge." (Source: Bloomberg)

How much upside will Shanghai-Hong Kong stocks connect program lead to?

Chen Li, Head of China Equity Strategy, UBS Securities

Bourse link plan to boost capital inflows

Chen Li, chief China equity strategist with UBS Securities, said that over the long term, foreign capital will account for nearly 10 percent of the free-float market capitalization of China's A-share market.

MMA is the upside factor of A-share market performance

Chen Li, Head of China Equity Strategy, UBS Securities

Chen Li, Head of China Equity Strategy, UBS Securities,  says the advent of MMA will provide significant upside for the performance of the A-share market in 2H2014. Foreign investors will sharpen their focus on the stock market once MMA is implemented in October but the impact has not yet been reflected in the market.

My name is Chen Li. I am the A share strategist of UBS Securities. I am still cautious about A share market in the coming 6 months because of three long-term market concerns: debt issue, capacity problem and the overall property market.

Although the economic growth is still positive in the short term, the market will not be good as long as the long-term concerns remain unsolved. I think the market has priced in the weakness of the property, the credit default. But there are one downside risk and one upside risk that have not been priced in. The downside risk is stock supply. Although CSRC limted IPO number into 100, the secondary market placement increased 40% this year. That means the stock supply is much bigger than expected. The upside risk is the impact of MMA. We do believe many foreigner investors will come to this market to chase cheap decals once MMA implemented in this October. So I think the market has not priced in the impact of MMA. In terms of the sectors, I like transportation, such as auto, railway. I like insurance and new energy, including nuclear and solar. I like environmental protection. This is my view of the A-share market.