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Hong Kong-Shanghai trade link disappoints on day two

Hong Kong-Shanghai trade link disappoints on day two

Yvonne Williams

Hong Kong (AFP)

Investors largely turned away from the link-up between the Hong Kong and Shanghai stock exchanges on Tuesday, a day after it launched to much fanfare and ambitions for billions of dollars in daily cross-border transactions.

Officials have trumpeted the Shanghai-Hong Kong Stock Connect as opening up China’s closeted stock markets to the outside world and giving mainlanders a chance to enter the lucrative Hong Kong exchange.

But the second day of trading has proved a damp squib, with China-based investors buying little more than three percent of their daily allowance of Hong Kong shares by the break, while Hong Kong dealers picked up only a fifth of their Shanghai quota.

Hong Kong-Shanghai trade link disappoints on day two
Head of the China Securities Regulatory Commission, Xiao Gang (2nd L) and Shanghai’s Mayor Han Zheng beat the gong during the opening ceremony of the Shanghai-Hong Kong Stock Connect, at Shanghai Stock Exchange, on November 17, 2014 (AFP)

The launch day was also disappointing. While Hong Kong investors had exhausted their daily allowance of Shanghai shares two hours before the end of trade, mainlanders used up less than 20 percent of their quota by the close.

The weak uptake was reflected in the two stock markets, which were hit by another batch of downcast housing data out of China that indicate continued weakness in the world’s number two economy. Hong Kong was down 0.75 percent at lunch, while Shanghai was 0.41 percent lower.

“One would expect trading volumes to be the highest at the beginning and have daily trading limits hit extensively,” Credit Suisse said, according to Dow Jones Newswires. “While we do expect participants to increase materially over time, southbound volumes were disappointing.”

Shares in Hong Kong Exchanges & Clearing fell 2.8 percent Tuesday after losing 4.45 percent Monday.

The creation of the trading platform is seen as a key step towards greater liberalisation in the world’s second largest economy.

But it is subject to strict limits in order to preserve capital controls in China, where Communist authorities keep a tight grip on the yuan currency.

If an investor buys stocks in the other market, when they sell the money can only go back to their home market account, a so-called “closed path” to prevent “hot money” leaking out.

Hong Kong-Shanghai trade link disappoints on day two
Chart showing the performance of Hong Kong Hang Seng and Shanghai Composite indexes AFP

However, while Hong Kong dealers are keen to buy up firms in China, many mainland traders — who are usually elderly, private investors — are reluctant to go the other way, and enter a market with which they are not familiar.