Wait may help the Shanghai share link run more smoothly
Forty years ago on November 14, 1974, the Hang Seng Index fell to 179 points. The index was down from its peak of 1,774 in March 1973, having lost some 90 per cent of its value in 20 months.
Forty years ago on November 14, 1974, the Hang Seng Index fell to 179 points. The index was down from its peak of 1,774 in March 1973, having lost some 90 per cent of its value in 20 months. It bottomed out a month later on December 10, at 150 points.
The spectacular drop was due to two factors. First, the Bretton Woods currency system collapsed, leading to a crash of global stock markets in which the US dollar went into free fall and interest rates shot up correspondingly.
Second, oil prices jumped fourfold at the embargo Arab oil-producing states imposed on the West after Israel defeated Egypt and Syria in the 1973 Yom Kippur war.
As a result, the world went into an economic depression.
Four decades later, Hong Kong's per capita gross domestic product stands at a new height of US$39,000. The stock market, though not yet back to its peak of 31,352 in October 2007, is close to a three-year high.
The main driving force this time, however, is not the world economy, which remains in the doldrums. It is a combination of unprecedented low interest rates and a market boost resulting from the Hong Kong-Shanghai share trading scheme that is due to come into effect on Monday. This scheme is the first of its kind and is expected to make history for the Hong Kong stock market.
The benefits due from the scheme are much more than the financial investments it will bring. This is one of several steps in institutionalising the renminbi as a major international currency. If the scheme runs well, the renminbi will be one step closer to entering foreign markets.
That both sides have taken only a few months to work out the logistics of the highly complex operation speaks volumes for the determination and the quality of the respective organising bodies. It is also a firm signal of the central government confidence in the Hong Kong Special Administrative Region as a key pillar supporting the nation's economic development goals.
This is one of many shining examples of how both the nation and the SAR can work together to achieve a win-win situation. It might have taken longer than we had hoped, but with hindsight, it is worth the wait because both sides are now much better prepared and possess the necessary institutional capacity to make the scheme work according to its designed purpose. Imagine what a mess it could have been had it gone ahead in 2008, the year the global financial crisis hit.
The final test of the pie remains in the eating. There are bound to be hiccups in the system that need sorting out as we move along. But from the market confidence shown on both sides, we can keep our fingers crossed that we will score a big hit this time.
