Landmark Hong Kong
Credit: Reuters/Bobby Yip
Traders take part in the afternoon trading at the Hong Kong Stock Exchange August 8, 2012.
Much of the cash flow from the so-called Stock Connect scheme is expected to be northbound initially, with foreign investors on the Hong Kong Exchange snapping up mainland shares under a daily quota of 13 billion yuan.
The expected fund inflow has helped push the SSE180 Index and the SSE380 Index - the two main Chinese destinations for foreign investments through the scheme - up over 10 percent and 6.5 percent since late last month.
Southbound investment, capped by a daily quota of 10.5 billion yuan, is likely to be less active, with few mainland investors yet to sign up to the scheme.
Over the longer term, however, it could boost the average daily value of stock trading in Hong Kong by about 38 percent by 2015, French bank BNP Paribas estimates, and may ultimately lead to the creation of the world's third largest stock exchange.
China already operates several cross-border investment schemes but these are restricted to specific firms that must apply for a license to participate.
The Stock Connect program was originally expected to launch on Oct. 27, but that unofficial deadline passed, leading to speculation that the program might be held up by technical or political hurdles.
The differing tax rules applying in Hong Kong and the mainland were also a major stumbling block, but China's Finance Ministry said on Friday that it would temporarily exempt taxes on profits made from the Connect scheme.
Hong Kong's leader CY Leung has hinted that the ongoing pro-democracy protests in the city had also played a role in the delay.
(Reporting by Kazunori Takada; Editing by Will Waterman)
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