China's Missing Exchange Link Leaves Traders in Limbo
Comment of the Day

October 27 2014

Commentary by Eoin Treacy

China's Missing Exchange Link Leaves Traders in Limbo

This article by Kana Nishizawa and Darren Boey for Bloomberg may be of interest to subscribers. Here is a section: 

HKEx is at the “completion stage” of preparation for the link, Li said in a conference call with reporters yesterday, declining to speculate on a timeframe for the start date.

“While the market will always appreciate advance notice, which we will strive to give, I’m not at this point stipulating any particular days,” Li said.

The Hang Seng Index (HSI) slid 0.7 percent at today’s close in Hong Kong. HKEx tumbled 4.7 percent, its biggest loss in six months, while brokerages First Shanghai Investments Ltd. and Shenyin Wanguo HK Ltd. each lost at least 8.8 percent. The Shanghai Composite Index declined 0.5 percent, its lowest closing level in a month.

Authorities said in April they may make further announcements on timing, yet they haven’t given any more details beyond their original statement that the link would start in about six months. Hong Kong’s Securities & Futures Commission declined to comment and the China Securities Regulatory Commission didn’t respond to a faxed request for comment.

Chinese regulators need to address whether foreign investors will pay capital gains taxes on mainland shares before the link can begin, Mark Mobius, who oversees about $40 billion as the executive chairman at Templeton Emerging Markets Group, said in an interview in Hong Kong.
Charles Li, Chief Executive Officer of Hong Kong Exchanges and Clearing Ltd.

“Unless they get all these issues straightened out and clarified, nobody is going to invest,” Mobius said.

Eoin Treacy's view

The opening up of a link between the Shanghai and Hong Kong stock markets would be a very meaningful catalyst for capital flows between China and the international markets and vice versa. However until it is in fact initiated, uncertainty about mainland commitment to the venture will remain, not least because of political uncertainty in Hong Kong. 

The Hang Seng Index has held a progression higher reaction lows since 2011 and will need to hold the 22,000 level if this medium-term demand dominant environment is to remain reasonably consistent. 


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