TRADING volumes on a landmark share trading link between the mainland and Hong Kong have surged to a record as China takes further steps to boost cross-city trading flows.

    The benchmark index in Shanghai has gained more than 17 percent so far this year to a seven-year high, far more than any other market in Asia as Chinese authorities steadily ease policy in a bid to prevent a sharp economic slowdown.

    Hong Kong’s stock market has lagged its mainland peers with a smaller 5.7 percent gain in the same period as concerns about slowing retail sales and the property market weigh on sentiment.

    But that gap is likely to start narrowing after regulators said Friday they will allow mainland mutual funds to invest in the Hong Kong market to boost the attraction of the Shanghai-Hong Kong stock connect program.

    The link was launched last November, but initial volumes were disappointing.

    “These steps are significant as they will encourage more onshore mutual funds to step into the Hong Kong market, where better opportunities exist, at least from a valuation perspective in the short term,” said a market structure strategist at a European brokerage in Hong Kong.

    The A-H share premium index, which measures price differences for dual-listed firms in both markets, has risen sharply since the stock connect launched.

    A value over 100 indicates that shares in dual-listed companies are cheaper in Hong Kong than in Shanghai. On Tuesday, it stood at 135, its deepest discount since October 2011.

    As a result, trading volumes on the Shanghai-Hong Kong stock connect pipeline has jumped sharply.

    On Monday, nearly a quarter of the daily quota was taken up on the Hong Kong-bound leg, the highest since the program was launched. (SD-Agencies)