HK-Shen­zhen trad­ing link off to a neg­a­tive start

Kuwait Times - - BUSINESS -

A long-de­layed trad­ing link be­tween the ex­changes of Hong Kong and Shen­zhen in China made a dis­ap­point­ing de­but yes­ter­day, with mar­kets on both sides of the bor­der end­ing lower.

The link opens an­other door to the main­land’s clois­tered mar­kets, al­low­ing for­eign­ers to buy shares in more than 800 Chi­nese firms for the first time, while also giv­ing main­lan­ders fur­ther ac­cess to Hong Kong-listed com­pa­nies. Sim­i­lar to a con­nect that kicked off be­tween Hong Kong and Shang­hai two years ago, the scheme is be­ing touted as China’s lat­est ef­fort to prove its cap­i­tal mar­kets are grad­u­ally open­ing.

But a growth slow­down in China’s econ­omy, the weak yuan and an ex­pected hike in US in­ter­est rates have an­a­lysts sound­ing a note of cau­tion. Hong Kong’s city leader Le­ung Chun-ying hailed it as “yet an­other milestone in deep­en­ing mutual ac­cess” be­tween the cap­i­tal mar­kets in Hong Kong and main­land China.

The for­mer Bri­tish colony is now a spe­cial ad­min­is­tra­tive region of China but re­mains con­nected to the global fi­nan­cial sys­tem, un­like the main­land’s closed mar­kets.

How­ever, by the close Hong Kong was down 0.26 per­cent and Shen­zhen’s com­pos­ite in­dex had given up 0.78 per­cent. And only 21 per­cent of the north­bound trade per­mit­ted un­der the scheme was taken up, while a lit­tle more than eight per­cent of the south­bound quota was used up. Hong Kong-based an­a­lyst Jack­son Wong said the lack­lus­tre start was not a sur­prise.”In­vestors were not ex­pect­ing a spec­tac­u­lar open any­way, be­cause in­vestor sen­ti­ment is a lit­tle bit on the quiet side,” he said.

That was mainly due to the weak yuan and con­cern that China would not open up cap­i­tal flows in the short-term, said Wong, a se­cu­ri­ties an­a­lyst at Huarong In­ter­na­tional. The mar­kets’ per­for­mance might im­prove once the cur­rency sta­bilises, he said, adding: “I think (China) will roll out more re­laxed poli­cies and that would even­tu­ally trig­ger... more buy­ing in­ter­ests.”

An­a­lysts said the reper­cus­sions of a rout last year in main­land mar­kets-which spread glob­ally-were still be­ing felt. That de­layed the launch of the new link, which had been ex­pected by the end of 2015. Con­cerns have been ex­ac­er­bated more re­cently by cap­i­tal flight caused by the yuan, which is at eight-year lows against the dol­lar.

Com­ments from Liu Shiyu, head of the China Se­cu­ri­ties Reg­u­la­tory Com­mis­sion, may also have dented sen­ti­ment, an­a­lysts said. Liu blasted hos­tile cor­po­rate takeover at­tempts be­tween Chi­nese firms in a strongly worded speech posted on the com­mis­sion’s web­site.

In the high­est pro­file case, China’s largest prop­erty firm Vanke has been fight­ing to re­pel an ac­qui­si­tion by pri­vate con­glom­er­ate Bao­neng Group that would be China’s first blue-chip hos­tile takeover.

While say­ing some buy­outs can be pos­i­tive, Liu con­demned those in which the suitor be­comes “a bar­bar­ian, and then even­tu­ally a ban­dit”. He did not spell out any of­fi­cial mea­sures to stem such takeovers.

“The (mar­ket) drop is mainly re­lated to (Liu’s) speech rather than the stock trad­ing link launch,” said Zhang Yufa, research di­rec­tor for pri­vate eq­uity firm Mil­lion Tons Cap­i­tal. “Mar­ket sen­ti­ment was af­fected by this.” How­ever, Liu Mon­day praised the new stock con­nect, say­ing it would “in­ject pos­i­tive en­ergy and in­stil con­fi­dence and trust in the in­ter­na­tional and do­mes­tic fi­nan­cial mar­kets”.

Shen­zhen is China’s sec­ond stock ex­change, be­hind Shang­hai, and is the world’s eighth largest bourse with a mar­ket cap­i­tal­iza­tion of $3.3 tril­lion as of Septem­ber. The Shang­hai-Hong Kong link launched in Novem­ber 2014 giv­ing for­eign­ers ac­cess for the first time to Chi­nese com­pa­nies not quoted else­where, and vice versa. But it has failed to ex­cite traders, with both daily quo­tas for south­bound main­land and north­bound in­ter­na­tional buyers of­ten un­filled. — AFP

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