China's Shenzhen city in the night.
© Dreamstime

China’s asset bubble did not burst last year, it just changed location — from equities to residential property. Last month, in an effort to cool the frenzy, the government introduced property price cooling measures. On Friday, official data showed that these have halted the run in cities including Shenzhen. There, interest looks set to shift back to the stock market as a scheme will open soon, allowing foreigners to trade Shenzhen-listed stocks through Hong Kong accounts.

In 1980, as part of Deng Xiaoping’s reforms, Shenzhen was designated a special economic zone; a test ground for a more freewheeling, capitalist system under Chinese communism. Its proximity to Hong Kong bolstered its position in modernisation drives. In the most recent residential property recovery it has also led the way: prices have nearly doubled in two years.

The appeal is not just speculative. Shenzhen is home to China’s Silicon Valley, hosting tech companies from Tencent and Huawei to space explorers and start-ups. In October, Apple said it will open a research lab in the city. Taiwanese iPhone assembler Foxconn and SoftBank-owned chipmaker Arm will, too.

Shenzhen is also home to China’s second largest stock market with a capitalisation of $3.5tn (to Shanghai’s $4tn). In August, regulators began the process of opening a stock connect link with Hong Kong, mimicking one in place with Shanghai. The new link will allow foreign investors to buy Shenzhen-listed A shares directly. Recent reports suggest it could open as soon as next week.

There will be appetite. At an average 24 times forecast 2017 earnings, the Shenzhen index is more expensive than Shanghai (13 times). But growth is higher: earnings are forecast to rise by four-fifths from 2015 — twice the rate of Shanghai. That is partly down to index make-up. Shenzhen is home to tech and healthcare names; Shanghai more stodgy financials. Even if China’s property surge slows, Shenzhen’s appeal will endure.

Email the Lex team at lex@ft.com

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