China to Link Shanghai and Hong Kong Bourses in Six Months

China has decided to connect the stock exchanges of Shanghai and Hong Kong, a move that will pave the way for a combined 23.5bn yuan of daily cross-border trading.

Investors will be able to trade 10.5bn yuan (£1bn, €1.2bn, $1.7bn) of Hong Kong-listed stocks through the Shanghai exchange, and 13bn yuan of mainland shares through Hong Kong, market regulator China Securities Regulatory Commission (CSRC) said in a statement on its website on 10 April.

A formal roll out of the pilot programme, dubbed Shanghai-Hong Kong Stock Connect, is expected in about six months, Hong Kong's Securities and Futures Commission (SFC) said in a statement on 10 April.

SFC said in the statement: 'Shanghai-Hong Kong Stock Connect comprises a Northbound Trading Link and a Southbound Trading Link. Under the Northbound Trading Link, investors, through their Hong Kong brokers and a securities trading service company to be established by the Stock Exchange of Hong Kong (SEHK), will be able to place orders to trade eligible shares listed on the (Shanghai Stock Exchange) SSE by routing orders to SSE.'

'Under the Southbound Trading Link, eligible investors, through Mainland securities firms and a securities trading service company to be established by SSE, will be able to place orders to trade eligible shares listed on SEHK by routing orders to SEHK,' SFC added.

Both institutional and individual mainland investors can take part in the trading link, but the latter will need at least 500,000 yuan in their securities account to participate in the southbound link, according to the SFC.

Connecting the stock exchanges will "further improve the opening and healthy development of capital markets in China and Hong Kong," Premier Li Keqiang said on 10 April at the Boao Forum on China's Hainan Island.

"This is good news for Hong Kong stocks," said Shirley Gu, an analyst at Guotai Junan Securities.

"It's not about the quota now -- the key is that the expectation is realised and this is now a certainty. This could attract new foreign investors and more active trading in Hong Kong," Shirley told Bloomberg.

Hong Kong's Hang Seng share average finished 1.51% higher on Thursday. Earlier, the Shanghai Composite index finished 1.38% higher.