(Yicai Global) Jan. 3 -- Stock markets in Hong Kong and Shanghai rallied on the first day of the trading year after China's securities regulator announced a plan to start a pilot program for full circulation of H shares.
The Hang Seng Index climbed 1.99 percent to 30,515.31, while the Shanghai Composite Index gained 1.24 percent to 3,348.33 on volume of CNY227.8 billion (USD35 billion). 

The Hang Seng China Enterprises Index jumped more than 3 percent and the Hang Seng China AH Premium Index closed at 128.83, indicating a premium of nearly 30 percent in the mainland.

The China Securities Regulatory Commission last week said it would test full circulation of H-shares, or shares of companies incorporated in mainland China that are denominated in Hong Kong dollars and trade in that city. The plan represents an upgrade to the Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect programs. 

The Hong Kong Stock Exchange's main board had 1,821 members as of Dec. 29. Of them, 250 were H-share companies. Some 98 of those were listed on the A-share or B-share markets. The other 152 are not yet fully circulated.

With the easing of tight liquidity at the end of last year and the introduction of full H-share circulation, opportunities exist for investors looking to enter the Hong Kong market, analysts said. Investors may watch stocks that benefit from the US Federal Reserve's interest rate hike, they said. Hong Kong stocks are expected to keep in fine form in the first half, and may be subject to the US rate increase in the second half, the analysts added.

Full circulation of H-share listed companies will help to ease the deviation between mainland shares and H-shares with the same equity basis, significantly improving corporate governance and management incentives, enhancing fair and transparent governance structure, and promoting management returns, said Zhou Xiaoping, an analyst with Minsheng Securities Co.

Benefiting from the easing of capital pressure and a strong yuan, the outlook for Hong Kong stocks is good, said BOC International analyst Lan Xiaofei. Investors can keep an eye on leading stocks in the auto sector, mid-term stocks in the lottery sector and shares on the rise in the healthcare sector, Lan said.