A long-awaited trading link in China is close to becoming a reality, and that’s got people talking about the country’s heavyweight status in financial markets.
A link connecting the Shenzhen and Hong Kong stock exchanges is slated to open Dec. 5, making hundreds of China’s fastest-growing companies available to foreign investors.
The Shenzhen-Hong Kong Stock Connect also “will essentially create the 2nd largest equity market globally by market cap,” said Goldman Sachs analysts, according to the Daily Shot newsletter.
The No. 2 ranking comes from grouping together the market capitalization of the exchanges in Shenzhen, Shanghai and Hong Kong.
The New York Stock Exchange ranks No. 1, while the Nasdaq exchange is third, as show in the chart below. The chart comes from the Financial Times and is based on data from the World Federation of Exchanges.
The Shenzhen-Hong Kong link — which follows a similar Shanghai-Hong Kong link that opened in 2014 — could force money managers to allocate more capital to China’s massive stock market, according to the Goldman analysts.
That’s partly because the new link will strengthen the case for including certain Chinese shares known as A-shares in global equity benchmarks in part because size matters, the analysts wrote.
There is buzz about how the Shenzhen exchange represents a “New China.” It is “a powerhouse of private enterprise, tech companies and strategic emerging companies,” said Stephen Sun, HSBC’s head of China and Hong Kong equity strategy, according to a South China Morning Post report.
The Shenzhen exchange is also criticized for being “rife with speculative trading in small-cap stocks with little institutional research coverage,” as a Wall Street Journal report put it.
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Mark Schlarbaum, Irvine, California