Shenzhen is the second major Chinese city to link up its stock market with that of Hong Kong in the space of less than two years.

Hong Kong has forged its second major link with mainland China’s equity market, creating a tie-up with the bourse in Shenzhen. It follows the launch of a link with Shanghai almost two years ago, putting rival Asian financial hub Singapore under competitive pressure.

Hang Seng Bank said the launch of the Shenzhen-Hong Kong Stock Connect was a “new milestone” in the development of securities markets in mainland China and Hong Kong, and would further push the renminbi as a global reserve currency.

The move comes at a time when mainland China has been opening capital and financial markets to foreign investment, making its currency more of a global unit of exchange and bolstering its attractions to curb outflows of foreign exchange from the Asian country.

“As an efficient way of liberalising the onshore financial market, we see the SZ-HK Connect as demonstrating a continuous commitment of the government towards financial reforms,” Aidan Yao, senior emerging Asia economist at AXA Investment Managers, said in a statement.

"For the market, we expect offshore equities on balance to benefit more from further southbound flows on foreign exchange diversification and value hunting. Northbound flows, in contrast, could be hindered by ongoing economic concerns and expensive valuations. This relative-positive view – in favour of the offshore market – does not overwrite our overall cautious stance on Chinese equities due to fundamental reasons. A sustained re-rating of the market can only be achieved, in our view, through material progress on structural reforms,” Yao said.

Mainland Chinese equities have been through a turbulent period, falling sharply towards the latter part of last year and remaining under pressure in early 2016 before staging something of a recovery. According to the MSCI China Index of equities, total returns so far this year are up 6.22 per cent (capital growth added to reinvested dividends), versus a drop of more than 3 per cent in 2015.