China’s A shares are now available to international retail investors, as a “through train” linking the Shenzhen and Hong Kong stock markets was rolled out on Dec 5th, 2016.
Shenzhen-Hong Kong Stock Connect can not only benefit the development of finance in both the Chinese mainland and Hongkong, attract more overseas investment, and promote the opening and reform of capital markets in mainland China, but can also strengthen Hong Kong's position as an international financial center and promote the internationalization of the RMB.
What is Shenzhen-Hong Kong Stock Connect?
The program, launched in December 2016, allows international investors, institutional and retail, to trade Shenzhen-listed stocks via the Hong Kong Exchange while Hong Kong H shares are eligible for trading by mainland investors.
Shenzhen-Hong Kong Stock Connect can deepen financial cooperation between the Mainland and Hong Kong, helping investors better share the benefits of economic development. It also further develops Shenzhen-Hong Kong's regional advantages, strengthening the relationship between the two cities.
Who are eligible investors?
While all Hong Kong and overseas investors are allowed to trade Shenzhen-listed shares under stock connect, eligible participants for southbound trade include mainland institutional investors and those individuals holding an aggregate balance of not less than 500,000 yuan in securities and cash accounts.
How to open an account?
There are 24 brokers in Hong Kong and 42 in the mainland who have already participated in stock connect, according to a list provided by regulatory authorities.
To trade through these market participants, retail investors will need to open an account. Application documents include:
Proof of identification — ID card, Entry Permit for traveling to and from Hong Kong and Macao or passport.
Proof of residence — property ownership certificate, utilities bill, mobile bill or social security statement.
What are eligible stocks?
As of December 20th, 2018, there were 880 eligible stocks for northbound trading, namely constituent stocks of the Shenzhen Stock Exchange having had a daily average market value in the Shenzhen Component Index or the Shenzhen Small and Medium-sized Innovation Index of not less than 6 billion yuan for six months before the deadline of regular adjustment and inspection, as well as shares that are dual-listed in the two bourses (A+H shares).
For southbound trading, investors are able to trade 417 eligible stocks, namely constituent stocks of the Hang Seng Composite LargeCap Index and the Hang Seng Composite MidCap Index, constituent stocks of the Hang Seng Composite SmallCap having a 12-month average market value of no less than 5 billion Hong Kong dollars, as well as shares that are dual-listed in the two bourses (A+H shares).
Trading under stock connect, is initially subject to quota restrictions. There is no restriction on maximum investment. However, overseas investors can only invest 52 billion yuan in A shares in a single day, while for mainland investors, a maximum of 42 billion yuan can be invested in Hong Kong stocks.
Both quotas apply on a “net buy” basis, which means investors are always allowed to sell their cross-boundary securities regardless of the quota balance.
Trading hours and holiday arrangements
In initial operation of Shenzhen-Hong Kong Stock Connect, investors are only allowed to trade on the other market on days when both are open for trading and banking services are available on the corresponding settlement days.
Northbound trading follows the trading hours of the Shenzhen Stock Exchange, while southbound trading follows those of theHong Kong Stock Exchange. Investors can place northbound orders five minutes before the mainland market session opens in the morning and in the afternoon.
International investors may trade and settle Shenzhen-listed stocks in renminbi only, while mainland investors trade Hong Kong-listed stocks in Hong Kong dollars and settle trades in renminbi.
Northbound trades follow the A share settlement cycle, meaning international investors buying Shenzhen-listed stocks on T-day can only sell the shares on and after T+1. Therefore, day trading is not allowed for the A shares market.
For southbound trading, mainland investors are allowed to conduct day trading for Hong Kong stocks.
Fees and levies
Hong Kong market investors (including Units and Individuals) shall be exempted from the income tax and value-add tax, if they get income through buying and selling the A shares of Shenzhen stock in Shenzhen-Hong Kong Stock Connect. However, handling fees, securities management fees, stamp duty and dividend tax will be imposed by the Shanghai Stock Exchange and the State Administration of Taxation.