Beijing delay hurts HK shares By Tom Mitchell and Robin Kwong in Hong Kong
Tuesday, November 06, 2007
Hong Kong shares suffered their worst fall since September 2001 yesterday after Wen Jiabao, China's premier, confirmed the delay of a scheme that would let Chinese investors buy Hong Kong stocks directly.
The Hang Seng Index, which had risen almost 50 per cent since the so-called “through train” arrangement was announced on August 20, fell back 5 per cent to 28,942.32.
The Hang Seng China Enterprises Index, tracking Chinese companies listed in the territory, fell almost 7 per cent in its worst decline in more than three years.
Other markets in the region also retreated. The Shanghai Composite Index fell 2.5 per cent in spite of a stellar debut from PetroChina, while in Japan the Nikkei gave up 1.5 per cent to close at a seven-week low.
“The nature of the [Hong Kong] market has changed since August 20 to become much more news-oriented,” Castor Pang, strategist at Sun Hung Kai Financial Group, said of investors' reaction to Mr Wen's comments. “Before you could look at fundamentals, but now fundamentals don't indicate how prices are going to move.”
Other analysts said Mr Wen was merely repeating reservations expressed by other officials in Beijing, and said China was still poised to export investment capital abroad through approved qualified domestic institutional investor funds.
Four recently approved QDII funds raised $17bn between them. Jing Ulrich, chairman of JPMorgan's China equities business, expects the country to export $90bn in QDII capital over the next year.
“The QDII programme is still in place,” Frank Gong, analyst at JPMorgan, said in a research note. “What has been delayed is the [through train] and not QDII. The Chinese wall of money still stands.”
Stephen Green, economist with Standard Chartered in Shanghai, said: “You already have a lot of informal flows coming into Hong Kong [from China] anyway. I don't think this kind of announcement [by Mr Wen] is enough to undermine the fundamental trade that is going on – the arbitrage trade.”
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