Markets steam ahead as date set for Hong Kong-Shanghai cross-border share trading

Imminent launch of Shanghai-Hong Kong stock exchange link boosts shares worldwide

PUBLISHED : Monday, 10 November, 2014, 8:55am
UPDATED : Tuesday, 11 November, 2014, 12:23pm

Share prices rallied yesterday after regulators in Shanghai and Hong Kong confirmed that the widely anticipated 550 billion yuan (HK$700 billion) scheme to directly link stock trading in the two cities would start next Monday.

A joint statement by the Hong Kong Securities and Futures Commission and the China Securities Regulatory Commission said that all rules had been agreed for trading and clearing as well as the terms for dealing with cross-border market misconduct.

The news sent the Hang Seng Index to a one-month high of 24,110.24 before it settled to end the day up 0.8 per cent at 23,744.70. The Shanghai Composite Index jumped 2.3 per cent to close at 2,473.67 - its highest since November 2011. It also helped lift the 45-country MSCI All World Index, a benchmark for international fund managers, to its highest since late September.

Market anticipation over the start date of the "through train" scheme had intensified in recent weeks, sparking a scramble among Hong Kong banks to secure sufficient yuan to meet anticipated demand for Shanghai-related trades.

The timing, however, caught some market participants in the city by surprise as they had expected a longer gap between the announcement and the beginning of trade.

"Initially, we were told there would be a two-week notice. Now it is literally starting in five trading days," said Stephen Sheung, head of investment strategy at Sun Hung Kai Investment Services.

The so-called through train had been expected to begin operations late last month, although a formal start date was never announced.

Market speculation on the perceived delay had focused on political fallout from the pro-democracy Occupy Central protests that have been running since late September.

Chief Executive Leung Chun-ying and Financial Secretary John Tsang Chun-wah have led lobbying efforts in recent weeks to get the scheme started.

Leung met President Xi Jinping on Sunday for the first time since the protests began.

Xi said Beijing was committed to the city's democratic reform within the framework set down in the Basic Law - Hong Kong's mini-constitution.

Meanwhile, Beijing needs Hong Kong's global connectivity to help it disperse fast-growing financial imbalances in the mainland economy that have fuelled asset price inflation, particularly in real estate.

The mainland's expanding trade surplus - which widened to US$45.4 billion in October, up 46 per cent on a year ago - adds to pressure to accelerate outward investment and negate the rapid build-up of foreign exchange.

"I think Beijing is showing commitment to gradually open up the capital account by opening up the stock market. It will be positive for investors' sentiment," Sheung said.

Hong Kong Exchanges and Clearing chief executive Charles Li Xiaojia believes the scheme will lead to a massive rebalancing of global capital flows, helping elevate the yuan from being a currency of trade settlement to one of international investment.