Illustration: Chen Xia/GT

Editor's Note:

On Monday, the Shanghai Stock Exchange tested hardware and software systems for the Shanghai-Hong Kong Stock Connect program, a scheme which will allow for cross-border stock trading among qualified investors, the Xinhua News Agency reported. With an official launch expected later this year, many analysts have attributed the recent surge in bullish sentiment at local A-share markets to developments made on this program. The Global Times interviewed three experts to get their views on what impact the new program will make on local markets.

Li Daxiao, director of research with Shenzhen-based Yingda Securities

The Shanghai-Hong Kong Stock Connect, a program that will open the door to easier cross-border trading of equities, is expected to formally launch some time in October.

The Shanghai Stock Exchange started testing hardware and software pertaining to the program Monday, marking a further step toward linking bourses in the two cities.

Based on the strong performance of A-share markets these days, we can see some hints of the positive influence this program will have. Over the short term, we can expect renewed investor confidence and greater market vitality.

Over the long term, the Connect program will wield a high degree of influence over local stock markets. As many know, most investors on the Chinese mainland are individual investors who lack in-depth financial knowledge and are prone to speculation. However, in most overseas markets, the investor class is primarily composed of institutional groups and professional asset managers who are far more levelheaded when it comes to engaging with the market.

After the Connect program kicks off, individual investors can follow the cues set by their more experienced institutional peers and gradually improve their investment strategies accordingly.

The connection between bourses in Shanghai and Hong Kong is also expected to give investors greater access to blue-chip stocks, thereby making them less inclined to gamble on junk shares. This will help the markets develop in a more healthy direction.

The Shanghai-Hong Kong Stock Connect program will mark just one step along the mainland's path to open its capital market. It's possible that the mainland will further loosen restrictions on overseas investment with the liberalization of the yuan.

She Minhua, a research fellow with Beijing-based Zhong De Securities

The Shanghai-Hong Kong Stock Connect program will have a positive impact on A-share markets, particularly banking and real estate stocks.

At the same time, cross-border trading will create new opportunities within industries that are underrepresented in the Hong Kong market, such as food and beverage makers.

It will take time to get the two bourses working in unison. As old restrictions get phased out though, investors will benefit from more choices and more opportunities. In fact, this is likely a signal that further openings in China's capital market could be in store for the future.

The results seen recently at stock exchanges on the Chinese mainland have been partially attributed to the rosy expectations surrounding the Connect program. Supportive onshore monetary policies and overseas capital inflows are also reasons for the recent upsurge in sentiment.

The US is expected to soon end its bond purchasing program, which will likely prompt some investors to reallocate more of their money into emerging-market equities. Many investors are also becoming quite disappointed with sluggishness in Europe, which could draw more foreign money into the mainland.

Qian Qimin, director of market research at Shenyin & Wanguo Securities

Large amounts of foreign money have poured into the Hong Kong market recently, but this doesn't mean that the flow will increase under the Shanghai-Hong Kong Stock Connect program. Qualified foreign institutional investor (QFII) schemes have already provided a channel for international capital to enter the local market for roughly a decade. This means that overseas investors aren't desperate to take part in the Connect program.

Although there is a possibility that the price gap between A shares and H shares will narrow under the scheme, arbitrage opportunities may not be as promising as some expect, since the QFII mechanisms have already been narrowing the price divide for several years.

bizopinion@globaltimes.com.cn