A LONG-AWAITED stock trading link between the Hong Kong and Shenzhen stock exchanges will open Dec. 5, regulators said Friday, further opening up China’s capital market to global investors and giving them access to some of its fastest growing firms.

    The launch will extend an existing trading link between Hong Kong and Shanghai, allowing foreign investors to trade Shenzhen stocks, one of the world’s busiest and most tech-focused exchanges, from Hong Kong. Mainland investors, meanwhile, will be able to trade an expanded range of Hong Kong stocks via the Shenzhen and Shanghai exchanges.

    “The necessary trading and clearing rules and other relevant rules, the daily quota mechanism and other regulatory and operational arrangements have been finalized,” the China Securities Regulatory Commission and the Hong Kong Securities and Futures Commission said in a statement.

    “The stock exchanges and the clearing houses have completed a series of market rehearsals with participants in both markets and reported that systems are ready. Trading will commence Dec. 5.”

    The regulators said they had also a memorandum of understanding on regulatory and enforcement cooperation for the cross-market trading link.

    The Shenzhen connect program had been expected to go live more than a year ago, but was put on hold after last year’s market crash, which saw stock prices fall by around 40 percent and a raft of interventionist measures unleashed to prop up markets.

    “The program opens up a new chapter of free access to a highly liquid market and investors can benefit from the vast investment opportunities in the environmental, IT, consumer discretionary and health care sectors, all of which are at the heart of the transformation of the Chinese economy and have been delivering strong earnings growth,” said Karine Hirn, partner at East Capital.

    With more than 1,800 listed companies that have a combined market capitalization of US$3.3 trillion, the Shenzhen market is viewed by analysts and fund managers as a major long-term investment opportunity, although high valuations and wild swings in stocks are likely to make some investors wary initially.

    “I don’t think it is going to be meaningful in the short term in terms of price moves, but I do think that in terms of capital market reforms it is very positive,” said Belinda Boa, head of active investments for Asia Pacific at BlackRock. “The opportunity in terms of what you can invest in is now much bigger than with Shanghai.”

    The extension of the link to Shenzhen will also see an aggregate quota cap on investment in both directions across the markets scrapped, and a new raft of smaller Hong Kong stocks available to mainland investors.

    The rule changes are expected to lead to dramatic inflows into Hong Kong, as mainland investors seek ways to diversify their assets out of a weakening yuan.

    “We believe this new link could be a re-rating catalyst for small-cap stocks in Hong Kong,” portfolio managers at Matthews Asia wrote in a note Friday.

    The market is still awaiting clarification by mainland regulators on the capital gains tax treatment of foreign purchases of Shenzhen stocks, although Hong Kong Exchanges & Clearing CEO Charles Li said in August he expected them to be exempt from tax, in line with the current rules for the Hong Kong Shanghai stock connect program.

    Investors have been waiting for an opening date to be set since the approval of the Shenzhen-Hong Kong link was announced in August. Concerns over the yuan’s decline against the U.S. dollar may have held it up, analysts say. (SD-Agencies)