By Kenan Machado
China’s announcement of its plans to further open up its markets, via a link between Hong Kong and the tech-heavy Shenzhen exchange, got a tepid response from investors on Wednesday.
Hong Kong’s Hang Seng Index /zigman2/quotes/210598030/delayed HK:HSI -0.47% closed down 0.5% on Wednesday, while the Shanghai Composite /zigman2/quotes/210598015/delayed CN:399106 +0.17% ending relatively unchanged
The Shenzhen Composite Index /zigman2/quotes/210598015/delayed CN:399106 +0.17% and the ChiNext index /zigman2/quotes/210597994/delayed XX:SZX00065 +0.70% , a listing board focused on fast-growing startups, were up 0.3% each.
Elsewhere, the Nikkei Stock Average /zigman2/quotes/210597971/delayed JP:NIK -0.23% gained 0.9% on the back of a weaker yen, and Australia’s S&P/ASX /zigman2/quotes/210598100/delayed AU:XJO -0.74% rose 0.1%. Korea’s Kospi /zigman2/quotes/210598069/delayed KR:180721 -0.57% traded 0.2% lower.
Late Tuesday, China announced it had given the green light to a stock-trading link between Hong Kong and Shenzhen, which would, let global investors buy Shenzhen stocks, and expand the range of Hong Kong stocks on offer to Chinese investors. China hasn’t announced a date, but the trading link is expected in 2016.
Despite a burst of trading gains in China stocks over several days since chatter over an anticipated announcement began last week, analysts have been skeptical regarding how attractive this link will actually be to foreign investors.
Traders can already invest in China’s domestic markets through the Qualified Foreign Institutional Investors scheme, or through the Shanghai-Hong Kong Connect, which began trading in November 2014.
“The market may enter a moderate correction period since the good news has been exhausted in the short term,” said Zhang Xin, an analyst at Guotai Junan Securities.
Moreover, Shenzhen equities are expensive, reflecting expectations of higher growth. The Hang Seng market trades at 11.8 times current earnings, compared with 12.8 times for Shanghai and 35.21 times for Shenzhen, according to Thomson Reuters.
“The good ones [Shenzhen stocks] are very, very expensive,” said Arthur Kwong, head of Asia Pacific equities at BNP Paribas Investment Partners.
China brokerage stocks succumbed to profit-taking on Wednesday. The Hong Kong-traded shares of GF Securities Co. /zigman2/quotes/208691005/delayed HK:1776 +0.55% fell 3.7% and Citic Securities Co. /zigman2/quotes/208139708/delayed HK:6030 -0.24% was down 4.4%. Hong Kong Exchanges & Clearing Ltd. /zigman2/quotes/200234512/delayed HK:388 -0.66% , which runs Hong Kong’s stock exchange, declined 4.7%.
The lackluster response was partly fatigue—traders had been anticipating the linkup for about one year. “We expected the Shenzhen-Hong Kong Connect for a long time,” said William Cheung, an analyst for regional strategy at Kim Eng Securities.
However small-cap stocks made gains in Hong Kong, with the Shenzhen Stock Connect expected to open around 100 new small-cap Hong Kong listings to investment from mainland Chinese buyers. “The contribution from Chinese investors will increase in the Hong Kong market,” said Chen Li, China strategist at Credit Suisse.
The Hang Seng Composite Small Cap Index rose 0.5% to a fourth-month high, bucking a move lower among Hong Kong’s stock benchmarks.
The trading link “is an exorcism of the fallout from the margin-financed collapse of mainland stocks in 2015,” said Sean Darby, chief global equity strategist at Jefferies in Hong Kong.
Elsewhere in the region, commodity-linked stocks propped up Japanese markets after crude-oil prices rose to a fresh one-month high on Tuesday, amid hopes of output caps from the Organization of the Petroleum Exporting Countries.
The yen was trading weaker against the dollar early Wednesday, giving up some of the sharp gains the previous session, after Japan’s top currency bureaucrat issued a fresh warning, saying that the government would have to act should the currency rise too sharply. The dollar-yen pair had hit 99.55 overnight, its lowest since June’s Brexit vote.
—Gregor Stuart Hunter, Yifan Xie, Kosaku Narioka and Saurabh Chaturvedi contributed to this article.