Stock Connect Initiative could help stem tide in HK

World Today

Fund managers have shifted out of stocks from local companies amid political risk in the wake of the Hong Kong protest rallies. Meanwhile, analysts have see the upcoming launch of the stock connect scheme, linking Shanghai and Hong Kong trading, as timely and significant in stemming the tide. CCTV America’s Cathy Yang reports.

As risks linger over Hong Kong’s financial markets following the protest rallies, fund managers have shifted out of equities. The re-positioning of portfolios are happening just a week before the unprecedented link-up between Hong Kong and Shanghai exchanges take place.

The overhang of generally weak market sentiment has raised questions over the timing of the Stock Connect Initiative’s launch. The link-up between Hong Kong and Shanghai exchanges had been expected to provide investors arbitrage opportunity. This would allow them to make money out of trading stocks, in both markets, with big price gaps.

However, that price gap is now gone. The drop in stocks in Hong Kong has not made them any cheaper than those listed in Shanghai. Even so, long-term investors may choose to look beyond that and focus on taking part in the initiative instead. The internationalization of the Chinese yuan is likely a major player in that decision.

Despite all this, the link-up is still set to launch on October 15th, following a series of market rehearsals in the past month.