Analysts expect strong debut for Stock Connect

Nov 17 will be no ordinary day for China's $4.2 trillion stock market.

The debut of the Shanghai-Hong Kong Stock Connect program will give global investors unprecedented access to shares on the Chinese mainland and put new trading systems to the test.

China will waive a capital-gains tax for foreign investors buying mainland stocks, bringing clarity to its tax laws before opening its markets through the exchange link with Hong Kong.

The government will also exempt an income tax for mainland investors buying Hong Kong shares for three years, according to a statement on the Ministry of Finance's website on Friday.

UBS AG said that foreigners will probably buy the maximum daily amount allowed under the program, while Bocom International Holdings Co Ltd said it anticipated a rally.

Anticipation of the link has already propelled an 18 percent advance in the Shanghai Composite Index since Premier Li Keqiang unveiled the plan in April, making the mainland the world's third-best performing major stock market after India and Japan.

Some local investors are speculating that funds will step in to ensure that shares gain on the first day. When Li unveiled the program, he said that it would promote the "healthy development" of China's capital markets.

Stock Connect expands access to Shanghai's 24-year-old market from a few foreign institutions to anyone with a Hong Kong brokerage account, giving foreigners the ability to purchase as much as $2.1 billion of Shanghai shares per day.

"This is a big game changer," said Mark Austen, chief executive officer of the Asia Securities Industry &Financial Markets Association in Hong Kong, whose members include BlackRock Inc and Goldman Sachs Asset Management. "We're very, very excited."

The exchanges in Shanghai and Hong Kong, which have scheduled ceremonies to mark the debut, will conduct final tests of their systems this weekend. Hong Kong will scrap a daily limit on the amount of yuan that residents can buy to support the link on Nov 17.

Calls to the China Securities Regulatory Commission were not answered. Central Huijin Investment Ltd, a State investment firm, did not respond to an e-mail seeking comment.

Brokerages have been preparing, with some waiving fees and offering prizes to lure customers. HSBC Holdings Plc said on Thursday it will waive brokerage commissions for mainland shares trading through Connect for up to six months.

"We've recently received lots of inquiries from foreign investors," Lu Wenjie, a strategist at UBS, said from Hong Kong on Thursday. "There will be quite big trading flows" into Shanghai, Lu said.

The link will allow overseas money managers to diversify their Chinese holdings away from the dual-listed financial companies that are already available to international investors in Hong Kong.

Eligible securities include the SSE 380 Index of mid-capitalization stocks, which have the biggest components in industrial and consumer-discretionary companies. By contrast, the Hang Seng China Enterprises Index has a 64 percent weighting in financial companies.

Stocks without Hong Kong listings, from industries including infrastructure and defense, may be among the biggest beneficiaries, according to Hao Hong, a strategist at Bocom in Hong Kong.

While the link will improve foreign access to mainland shares, aggregate net purchases through the program are limited to 300 billion yuan ($49 billion). That is equivalent to about 2 percent of the combined market value of shares in the SSE 380 and the SSE 180 Index, which is also eligible.

Consumer shares to gain from HK link	Preferential tax policy in pipeline for Stock Connect program