A TRADING link between Hong Kong and Shenzhen, home to the Chinese mainland’s other major stock exchange and one of the world’s most volatile bourses, is expected to start soon.

    The tie-up will be a welcome reprieve for international money managers seeking a change from the staid banking and energy companies that dominate Shanghai, whose exchange was connected with Hong Kong’s a couple of years ago. Shenzhen stocks are more skewed toward China’s vibrant services sector, and as such are more highly valued by investors chasing growth.

    Playing Shenzhen stocks, therefore, means taking on more risks.

    One reason is because the market is awash with individuals, small-time investors hoping to make a quick profit. As much as 59 percent of Shenzhen’s bourse is in retail hands, versus about 34 percent in Shanghai, Goldman Sachs Group Inc. research shows.

    That means two things: more margin financing, or borrowing to fund stock purchases, and lots of “stir frying,” the expression used to refer to the frequent buying and selling of equities in China.

    It’s not like Shanghai investors aren’t flip happy themselves. Turnover velocity, or the number of times on average a stock is traded in a year, is more than five times in Shanghai, compared with 0.8 in Hong Kong. But in Shenzhen, stocks are turned over almost nine times a year, giving the exchange the distinction of having the world’s highest turnover velocity.

    Shenzhen offers companies that are popular with investment banking analysts and that have interesting stories, like liquor maker Wuliangye Yibin Co., video surveillance firm Hangzhou Hikvision Digital Technology Co., and even Wanda Cinema Line Co., tycoon Wang Jianlin’s bet on China’s box office overtaking the United States.

    Here, volatility is the name of the game. Wanda Cinema, which according to analysts surveyed has 11 buy calls, two holds and one sell, went from market darling to struggle street in a matter of months as movie takings slowed over the summer.

    When it arrives, the Shenzhen-Hong Kong connect will be a boon to all those foreigners wanting access to China’s fast-growing health care, consumer and tech firms without pre-approved quotas. (SD-Agencies)