HONG KONG: Shenzhen is proposing to increase financial ties with Hong Kong, including cross listings, connecting trading networks and allowing Hong Kong-listed red-chips to list in Shenzhen on a trial basis, Caijing magazine reported yesterday, citing Li Lin, director of Shenzhen Financial Services Office.

The market, however, is uncertain about the feasibility of the proposal.

According to the plan, Hong Kong H shares will be allowed to list on the Shenzhen Stock Exchange while B shares listed in Shenzhen will be allowed to list on the Hong Kong Stock Exchange.

H shares are Hong Kong-listed mainland companies while Shenzhen's B shares are denominated in Hong Kong dollars.

The proposal also outlines a trading network connection between Shenzhen Stock Exchange and Hong Kong Stock Exchange, which gives mainland investors direct access to overseas securities markets.

The proposal, which is now awaiting central government approval, will also allow Hong Kong's exchange traded funds (ETF) and China depository receipt (CDR) to be traded on the Shenzhen Stock Exchange on a trial basis.

Hong Kong Monetary Authority chief executive Joseph Yam said yesterday during a visit to Beijing that, despite differences between the mainland and Hong Kong financial systems, a large number of the financial products are identical and therefore the two sides could cooperate by starting from a trial basis.

A Hong Kong Stock Exchange spokesman said yesterday that some technical problems, including the convertibility of the yuan, needed to be resolved by both sides before cross listing.

Analysts in Hong Kong, however, are uncertain about the feasibility of cross listings.

"Allowing Hong Kong's H shares to be listed in Shenzhen is theoretically viable but practically with limitations," said Castor Pang, chief strategist at Sun Hung Kai Financial, adding that "there will be some requirements for the eligible investors, for example, the investor will need to hold a certain amount of Hong Kong dollars."

"Whether the H shares' listing will influence the market in Hong Kong depends on the scale of investors," Pang said.

The analyst also noted that the cross listing may involve some regulation changes.

(HK Edition 07/15/2009 page4)