Shanghai-Hong Kong Stock Connect - Hang Seng means ‘ever growing' in Cantonese but the index remains a fifth below its peak. The 2007 high was reached after China announced (and later cancelled) plans to allow mainland investors to buy Hong Kong shares. Now a second attempt is going live in six weeks. Whilst a repeat of the 2006-07 rally is unlikely, investors should pay attention. New rules allow a roughly $2bn daily trading quota each into Hong Kong and Shanghai. That is nothing for the Ashare market but represents a quarter of Hong Kong volumes. Small and mid cap stocks could be particular beneficiaries given Chinese investor preferences. The move also opens the opportunity to arbitrage away the 8 per cent discount of A-shares to Hshares. But Beijing will also have to learn to live with higher volatility and the possibility of imbalanced currency flows.

Eoin Treacy's view

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The Hang Seng Index (P/E 10.79, DY 3.65%) retested its 2010 high this week and following such an impressive short-term rally some consolidation of recent gains looks likely.

It is worth considering that the last time the connection between Shanghai and Hong Kong exchanges was mooted it resulted in an acceleration of what was already a well-defined uptrend. On this occasion, the Hang Seng has been ranging for more than four years suggesting there is not nearly as much investor participation, leaving significant room for additional upside provided the Index continues to find support in the region of the 200-day MA on reactions.