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China in focus as HK-Shanghai link debuts

Chinese stocks will be under the spotlight as the long awaited stock exchange link between Hong Kong and Shanghai launches today.

Hong Kong business district
Source: Bloomberg

Dubbed the ‘through train’, the exchange link will allow foreign investors unprecedented access to China's US$4.2 trillion equity market - creating the second-largest bourse in the world. 

Conversely, the link will give mainland retail investors a chance to go shopping on the Hong Kong exchange for the first time.

Interest has been building up ahead of the event, with the Hang Seng China AH Premium Index up at 101.56, which is 8% higher since April when plans for the link were announced by Chinese premier Li Keqiang.

This is the highest reading by the index in over a year and indicates the premium that mainland dual-listed shares are trading relative to their Hong Kong counterparts.

Amid the air of optimism, there are expectations for huge fund flows to the Chinese markets. In in interim at least, this should provide a lift for Chinese indices such as China A50, China H-Shares, and the Hong Kong HS50.

The success of this link could see similar set ups such as a bridge between Hong Kong and China’s second largest stock market in Shenzhen, or potentially even a link to Singapore.

Ahead of the Hong Kong open

We are likely to see Hong Kong stocks build on the momentum of their five-day winning streak. The Hang Seng Index gained 2.28% over the past week, closing at 24,087.38 points. This sees it holding above the 24,000 point level for the first time in nearly two months.

There is slight bullish bias with 79% of the index constituents above their 20D MA (vs 72% the previous session) and 65% of the shares are above their 50D MA (vs 63%). On that basis, we are calling for the Hong Kong HS50 to open 2.36% higher at 24,650.30 points.

Hong Kong HS50 Chart
Click to enlarge

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