Too soon to cheer SH-HK stock exchanges connection

Some analysts have suggested that a scheme linking the Shanghai and Hong Kong stock exchanges could start operating some time in October.

It can hardly be denied that such a link will promote the internationalization of the yuan and ease liquidity conditions on the Chinese mainland and Hong Kong. It may also boost stocks that have long been undervalued on A-share markets. Despite these upshots, investors should not become excessively positive about the scheme.

First, the relatively high barriers on participation will exclude many individual investors. According to regulations, only those with a minimum of 500,000 yuan ($80,899) in their trading accounts will be allowed to take part in cross-border trading.

Second, stock markets in Hong Kong and the Chinese mainland have different trading systems. In Shanghai, transactions can be settled one day after the request to buy or sell. In Hong Kong though, stocks can be transferred two days after a trade.