Hong Kong has had its fair share of negative headlines recently around the pro-democracy protests, but the start of a major stock market link with the Mainland could be just the tonic the city needs.

Hong Kong has had its fair share of negative headlines recently around the pro-democracy protests, but the start of a major stock market link with the Mainland could be just the tonic the city needs.

That certainly seemed to be the reaction of investors to news that the Hong Kong/Shanghai stock market Mutual Market Access link, sometimes dubbed the “Through-Train”, is to debut on 17 November, potentially opening up China’s as-yet relatively young equity market to a vast international audience.

Yesterday, it was reported that Hong Kong Exchanges & Clearing saw its own share price jump by 4.6 per cent to a price of HK$138 at the close of trade, the sharpest rise, according to Bloomberg, since 11 April when the link was initially announced. The prospect of such a link, coupled with moves by China to widen use of its renminbi-based foreign investment quota system, has been seen as how China is seeking to make its renminbi currency more of an international one.

"The launch of the HK-Shanghai Connect programme is a milestone in the evolution of China's financial sector and the opening of its capital markets. It will provide a significant boost to international participation in the China equity market, providing international investors with access to the US$3.9 trillion A-share market,” according to Shane Gunter, co-head, equities, at UBS.

In a note, UBS said the link provides foreign investors a convenient way to access local A-share (especially those with low valuation and in unique sectors) and argued that those names still underperform the market during the recent rally, and “MMA effect” has not been fully priced in.

The Swiss bank said the present 0.7 per cent A/H-share price discount and some logistic difficulties may lead to lukewarm MMA trading turnover in the first few weeks but this will also lessen a concern that investors will replace many H-shares with cheaper A-shares. “Investors could see the Connect Program off as a positive catalyst,” UBS said.

Based on a survey UBS carried out at a MMA conference on 22-23 September, 85 per cent of respondents said they would trade A-shares through MMA in the next 12 months but only 26 per cent will be ready to invest in the first week after the MMA launch.

Media reports said Chinese authorities are close to finalising how trading on the link will be treated for tax purposes, such as over capital gains.

Unsurprisingly, some banks were already treating the announcement of the launch to make their pitch for business. Hang Seng Bank yesterday said it will launch Shanghai-Hong Kong Stock Connect Northbound Trading services on 17 November with an "unlimited brokerage fee waiver and free real-time A-shares quotes offer".

The link can be seen also as part of how China, the world's second-largest economy, is trying to shift the economic centre of gravity towards Asia. The Chinese renminbi currently accounts for less than 9 per cent of global trade, with the lion’s share accounted for by the US dollar. There is arguably plenty of upside for the Chinese currency.

Whether Hong Kong's share of total financial business expands relative to the rest of Asia as a result of the link is not easy to judge, but the link does come at a time when there have been mutterings about how the city could lose some of its market share to Singapore as a wealth management hub. The protests in Hong Kong over recent weeks have hurt Hong Kong's reputation although as of yesterday, there were no reported bank branch closures (source: Hong Kong Monetary Authority).