Move further opens market

An investor watches an electronic board showing stock information at a brokerage office in Beijing, March 30, 2016.[Photo/VCG]

The State Council, China's Cabinet, has taken another major step toward linking the stock markets of the mainland and Hong Kong by approving a plan to link trading between the Shenzhen stock exchange and that in the special administrative region.

The initiation of such a new stock connect, based on the successful experiences of the Shanghai-Hong Kong pilot program launched 22 months ago, marks another step toward building a fully regulated capital market with international features.

The new move will be of great significance to the opening up of the Chinese mainland's financial market to the outside world, given that it will make it more convenient for global investors to buy mainland A shares. The mainland's A-share stock market is the world's second largest stock trading market, but MSCI Equity Indexes, considered to be the weather vane for international investors, has delayed including it in its emerging markets index for three consecutive years, citing concerns over its low-degree of internationalization.

More improvements to the mainland's A-share market are needed. And the latest Shenzhen-Hong Kong Stock Connect is expected to further promote the opening up of the mainland's stock market to the international capital market.

The Shenzhen-Hong Kong Stock Connect is also good news for domestic investors given that it will bring more overseas funds to the mainland's currently lukewarm stock market. The day before the official announcement of the Stock Connect, the Shanghai Composite Index rose to 3,100 at close of trading on Monday, its highest level in recent months.

The relatively relaxed monetary environment the mainland should leave no space for pessimism over its market trends. But the drastic fluctuations in China's stock market last year that rattled investors mean they should remain risk aware.