Detours to Linking HK, Shanghai Stock Exchanges

♠ Posted by Emmanuel in at 11/11/2014 01:30:00 AM
The Hong Kong Stock Exchange has yet to be, ah, Shanghaied
The recent turmoil over student protesters jamming the normal course of traffic (and commerce) in Hong Kong has caused the PRC leadership more than just political annoyance. True, the presence of protesters has caused disruptions to Chinese shoppers and other visitors, but there are other consequences in play as well. One which hasn't been discussed at much length elsewhere is the delayed implementation of cross-listing between the Shanghai and Hong Kong stock exchanges. This integration would be a boon to offshore investors looking to take a punt in mainland stock exchanges, albeit for b-shares only permitting foreign ownership. It would also allow mainland investors a bit more diversification by being able to invest in Hong Kong's more liquid equity bourse.

Or so that was the plan. Actually, the data infrastructure to allow the interchange is already in place and the paperwork has already been largely sorted. However, the strained relationship between Hong Kongers and their erstwhile rulers the mainlanders has delayed implementation. You know how the Chinese are about auspicious timing and all that:
The exchanges are ready. Regulators have signed off. And now Hong Kong’s leader says he hopes the program will start soon. All that’s needed for the Hong Kong-Shanghai bourse link to begin is a green light from China’s top leadership, according to Zheshang Securities Co. and Dragon Life Insurance Co. Brokers and investors, who had anticipated making their first cross-border trades last month, have been left in the dark on the start date after six months of preparation.

Delays in the program, which gives foreigners unprecedented access to China’s $4.2 trillion stock market and lets mainland investors buy Hong Kong shares, have fueled volatility in the city’s equities and sparked losses in shares of Hong Kong Exchanges & Clearing Ltd. While Chinese Premier Li Keqiang hasn’t spoken publicly on the start date or reasons for the delay after unveiling the plan in April, some investors say China’s leadership may be waiting for clarity on tax rules and an end to pro-democracy protests in Hong Kong.

“The final say on when the exchange connect will start should be in the charge of the State Council, and top leaders still want to see how the event in Hong Kong is going,” said Wu Kan, a money manager at Shanghai-based Dragon Life, which oversees about $3.3 billion.
The hope of the integration's proponents time-wise is that the bigwigs will sort the matter out in Beijing. Recall that APEC is a gathering of economies, not countries, meaning that Hong Kong (along with Taiwan for that matter) have their own representatives at the gathering:
Hong Kong Chief Executive Leung Chun-ying told reporters today he will discuss the start date and seek China’s support for the program during the Asia Pacific Economic Cooperation meeting scheduled this month in Beijing...

The deciding power on when to start the link should be in the hands of levels that are higher than the CSRC [China Securities Regulatory Commission], say, the State Council,” said Wang Weijun, a strategist at Zheshang Securities Co. in Shanghai. The CSRC, or China Securities Regulatory Commission, is the nation’s financial markets regulator while the State Council is the country’s cabinet
I am sure the link will be completed' the only question is when since Party bigwigs want it to look like a smooth unveiling instead of one made amid the chaos of student protesters mucking about in Hong Kong. Especially with financial concerns, optics matter.