Tumult On The Line Between Shanghai and Hong Kong Exchanges

Tumult On The Line Between Shanghai and Hong Kong Exchanges

Expected in October, opening a link via Hong Kong to invest in the most restrictive stock market in Shanghai, will not occur within the originally announced time. The Hong Kong Stock Exchange managing agency said in a statement on Sunday Oct. 26 to be technically ready, but have not received approval for the time of the competent authorities to open this gateway.

While the Chinese government has committed its readiness to open up the second largest economy, the Prime Minister, Li Keqiang, introduced the program in April, calling it “Stock Connect. The government aspired to launch the program within six months. The date of October 27 was suggested by traders.

The Shanghai stock market, the largest market in mainland China, is still very closed as compared to the rest of the world. Foreign financiers can only invest via a derogatory program, allowing the Chinese authorities to determine what funds and banks can participate, according to quotas set by Beijing. And by contrast, the Hong Kong Island is one of the most open major financial centers of in the world.

The connection between the two would allow Hong Kong investors to put together up to 300 billion yuan (38.6 billion euros) in shares listed in Shanghai, with a cap of 13 billion yuan movements per trading day to avoid too sudden floods. In return, the financial institutions in mainland China, which are still struggling to invest outside their borders due to monitoring capital flows could in turn earn up to 250 billion yuan in shares listed in Hong Kong, provided they invest in the ‘listed’ companies on each side, a common practice to benefit from both Chinese funds from the rest of the planet. BNP Paribas said that this program could increase the average daily trading volume on the stock exchange of Hong Kong from 38% in 2015.

A Fuzzy Taxation

However, an organization representing major banks operating in the region, Asia securities industry & financial markets Association (ASIFMA), expressed concern in a letter to the Hong Kong stock market regulator earlier in October and whose contents were revealed by Reuters, remaining unresolved despite approaching the launch date questions, request that it be postponed for a few weeks.

The group especially emphasized the fuzzy nature of the taxation of gains on these markets through the program, but also the need to prepare the necessary documents for their clients. To prepare, they asked to be notified of the opening date at least one month in advance.

Another element has been engaged in this debate, which until then did not raise political questions, except perhaps on the mania of the Beijing government to always announce rapid achievements at a risk to lose face when deadlines are not sustainable. For the financial heart of Asia the last month has also been the scene of pro-democratic events. So now some bankers question whether the adjournment is not for Chinese regulators a form of punishment against the former British colony protest.

The Hong Kong market was recognized on October 21 as the most extensively growing the most in September, ranking with 3.1% gains among the only two not decline among the top 23 stock exchanges in the world. In this context, Ed Chin, head of hedge fund but also financial representative involved in the Occupy movement in Hong Kong, feels it would be “pretty boy to use this time probably related to technical issues such as argument against us.”

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