By Michelle Price and Pete Sweeney
HONG KONG/SHANGHAI (Reuters) - A long-awaited trading link between Hong Kong and Shanghai will launch on Nov. 17, a crucial step towards opening China's capital markets that will give foreign and Chinese individual investors unprecedented access to each others' stock exchanges.
The announcement by Hong Kong and Chinese regulators on Monday comes as China is making a big push to widen the use of the yuan, with Canada and Malaysia becoming the latest addition to a growing list of trading hubs for the currency.
The so-called Stock Connect trading scheme 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.
The project will at the same time provide a channel for Chinese savers to start moving some of the $8 trillion of private wealth currently in deposits into overseas stocks.
"This marks an important milestone in the liberalization of the mainland's capital account," said Hong Kong Monetary Authority CEO Norman Chan. "It will also propel the development of offshore renminbi business in Hong Kong to new heights."
Chinese markets rallied as the launch date was announced.
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.
Hong Kong's leader CY Leung hinted last week the recent pro-democracy protests in the city had played a role in the delay.
Industry participants had also said uncertainty over the taxation of capital gains was a possible sticking point.
Hong Kong Exchanges and Clearing Ltd. (HK:0388) CEO Charles Li said on Monday the tax regime for the trading link would be announced before the launch next week. "I wouldn't waste time agonizing about it," he told reporters.
If the two stock markets become further integrated, they would form the world's third-largest equity market with a $5.6 trillion capitalization, according to Allianz Global Investors.
China already operates several cross-border investment schemes but these are restricted to specific firms that must apply for a license to participate.
Giving foreigners easier access to Chinese stocks could provide support for an ongoing stock market rally and liquidity to upcoming Chinese stock market listings.
Chinese stocks have been among the world's worst-performing in recent years, down nearly 25 percent from five years ago. But they have been rallying since summer and look set to post their best annual performance since 2009.
The Shanghai Stock Exchange said on Monday regulators are ready to experiment with resuming same-day settlement for stocks after a long freeze, a move that would put Hong Kong and mainland Chinese exchanges on the same settlement regime and eliminate a big operational mismatch.
($1 = 6.1144 Chinese yuan)
(Additional reporting by Denny Thomas, Engen Tham, Lu Jianxin and Lisa Jucca; Editing by Lisa Jucca)