One year after the initial announcement of the 'through-train' scheme to allow mainland investors to buy Hong Kong-listed stocks, we have long ago given up waiting for its arrival and are left standing on the platform wondering what we should learn from the service's cancellation.
Back in August last year, the whole idea seemed to offer the Hong Kong market a desperately needed lifeline. While mainland stocks continued to soar to new heights, Hong Kong-listed H shares had tumbled 18 per cent in a matter of weeks as the city's markets began to feel the grip of the credit crunch. As a result, the premium at which mainland-listed A shares trade to H shares widened to a record 80 per cent (see the chart below).
In principal, the through-train idea appeared to kill two birds with one stone. Allowing mainland investors limited freedom to buy Hong Kong-listed stocks would both divert fund flows away from bubbly mainland markets and shore up sagging prices here.
Hong Kong stocks promptly rebounded, with H shares rising 85 per cent over the next three months as investors attempted to front-run the anticipated influx of mainland funds.
Unfortunately, the State Administration of Foreign Exchange, which proposed the idea, was premature in its announcement, having failed to enlist the support of other state agencies. A bitter bureaucratic turf war ensued until Premier Wen Jiabao finally halted the programme in November.
The Hong Kong market has since slumped back to roughly where it was a year ago. The lesson is clear: Hong Kong investors should not rely on deus ex machina favours from the mainland authorities to support the Hong Kong market. They would be far better off sticking to traditional investment techniques, like looking for good companies at attractive prices.
Yesterday provided a welcome fillip for the stocks of mainland electricity generators listed in Hong Kong. Datang International Power Generation was typical, with its shares rising 3 per cent in response to investors' expectations that the mainland authorities were about to raise wholesale electricity prices.