There isn’t a timetable for the link and any announcement about when it will begin should be made jointly by regulators, Hong Kong Exchanges & Clearing Ltd. Chief Executive Officer Charles Li told reporters today.
The Shanghai Composite Index dropped 0.7 percent, erasing an earlier gain of 0.2 percent and extending its loss this week to 1.4 percent. The Hang Seng China Enterprises Index (HSCEI) added 0.5 percent in Hong Kong after advancing 1 percent. The CSI 300 Index fell 0.1 percent as commodity producers slid.
“The way I am reading this is that it’s
delayed and is totally in the hands of the two regulators,” Andy Maynard, global head of trading and execution at CLSA Ltd., said in Hong Kong. “My speculation is that the southbound brokers are not ready and voiced their concerns and asked for more time,” he said, referring to mainland Chinese brokers.
Aluminum Corp. of China Ltd. posted its biggest decline in almost a month in Shanghai, while Shaanxi Coal Industry Co. retreated 3.2 percent. Hong Kong Exchanges added 0.9 percent, paring an earlier 1.6 percent advance.
Charles Li, Chief Executive Officer of Hong Kong Exchanges and Clearing Ltd.
Li Comments
“We don’t have a timetable,” Li told reporters today. “Whether it’s announced today, tomorrow, the day after, two days after, or any other day, it is not important which day it is going to be announced, people shouldn’t read too much into the timing of it. The main issue is that we are prepared for the starting gun.” He added that any announcement of the start date won’t be made “unilaterally.”The China Securities & Regulatory Commission didn’t respond to an e-mail query on when it plans to announce the start date for the link. Ernest Kong, a Hong Kong-based spokesman at the city’s Securities & Futures Commission, declined to comment.
“Without a timetable, the market is obviously disappointed, judging from its initial reaction,” said Hao Hong, a strategist at Bocom International Holdings Co. in Hong Kong. “Because A shares were supposed to be a bigger beneficiary due to direction of fund flows, they are reacting worse.”
Pro-Democracy Protests
The Shanghai Composite has rallied 14 percent since the end of June, compared with a 1 percent decline by the Hang Seng China Enterprises index.Li’s comments come as pro-democracy protests block streets in Hong Kong for a third week in the biggest political upheaval since China regained sovereignty of the territory in 1997. Student leaders last night accepted an offer from Chief Executive Leung Chun-ying to begin negotiations on the city’s new electoral system, though he dismissed their demand that China permit voters to freely choose candidates for Leung’s successor in 2017.
The link may be delayed on “political reasons”, the Hong Kong Economic Journal reported last week, citing Joseph Yam, former chief executive of the Hong Kong Monetary Authority. Yam “can not rule out possibility that because of political reason, Shanghai-HK Stock Connect may be delayed,” Thomas Chan, Yam’s spokesman, wrote in an e-mailed response to questions Oct. 10.
Psychological Impact
China’s shares in Hong Kong have trailed their mainland-listed counterparts in the second half of the year as traders bet on valuation gaps closing before the start of the exchange link, which will make it easier for arbitragers to move money between the two markets.The Hang Seng China AH Premium Index has swung from signaling a 12 percent premium for Hong Kong shares in July to almost parity. Hong Kong-listed shares of Bank of Communications Co. now trade in line with the mainland counterparts after fetching a premium of almost 15 percent in July.
China is counting on a successful bourse link, which was unveiled in April, to help liberalize its financial system and increase use of the yuan. Existing rules restrict overseas money managers to foreign currency-denominated B shares, while only those approved under the Qualified Foreign Institutional Investor program can invest in yuan-denominated A shares.
Concern the link will be delayed is having a “psychological impact” on stocks, Xu Shengjun, an analyst at Jianghai Securities Co. in Shanghai, said by phone. “However, I don’t think there’s need to worry. They have tested the system and it’s ready and the A-H premium has narrowed, so even if it’s delayed, the impact on investors shouldn’t be big.”
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