Monday, 5 December 2016

HK's Financial Market Closer to China

The opening ceremony of the Shenzhen-Hong Kong Stock Connect today
Another sign Hong Kong is moving closer to the mainland -- today was the launch of the Shenzhen-Hong Kong Stock Connect, where Hong Kong investors can buy mainland stocks and vice versa.

Foreigners will now have access to trading the stocks of almost 900 firms. According to the World Federation of Exchanges data, Shenzhen is Asia's busiest stock exchange, with a monthly turnover of over US$1 trillion.

The link was supposed to be launched last year, but was delayed due to mainland market volatility.

Hong Kong will benefit from stock trades going both ways
However, the first day of trading was considered rather muted, using only 21 percent of its daily northbound quota. It also failed to boost the Hang Seng index that dropped 0.26 percent due to overseas market volatility.

At the opening ceremony, Hong Kong Chief Executive Leung Chun-ying said: "This will strengthen Hong Kong as a super-connector between the world and the mainland. This will also enhance Hong Kong's role as an offshore yuan trading hub."

Two years ago the Shanghai-Hong Kong Connect link was launched, and Hong Kong Exchanges and Clearing chief Charles Li Xiaojia said today was a new milestone.

"If Shanghai-Hong Kong Stock Connect is a first baby step, the Shenzhen-Hong Kong is the second. Now we can walk, and then we can run," he said.

Foreign investors have access to almost 900 Chinese firms
While the link gives foreign investors access to mainland companies, it also benefits mainland investors looking to park their money outside of China. But surely many are savvy enough to know that having their stock trades watched is not the best way to transfer their money elsewhere.

So, it looks like whether we like it or not, our financial markets are becoming physically closer, offering a way for some people to launder their money, and for foreign investors who haven't done their due diligence to increase their chances of losing money on companies that are possibly not above board.

Perhaps that's why the response wasn't that enthusiastic today?

Time will tell.

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