30 January 2008

FT: China concerns delay HK trade by mainlanders

China’s worries over the subprime debacle are contributing to delays in allowing individual mainland citizens to buy shares on the Hong Kong stock market, the head of the self-governing territory’s central bank said on Tuesday.

“The subprime mortgage crisis and the situations of stock markets in Europe and the US were making [Chinese] leaders worried,” Joseph Yam, chief executive of the Hong Kong Monetary Authority, told the territory’s legislative council.

Beijing announced the go-ahead for the so-called “through train” scheme on August 20, during a period of subprime turmoil on the Hong Kong stock market. The announcement triggered a dramatic turnround for the Hang Seng index, which rallied by 55 per cent over the following six weeks.

However, Wen Jiabao, China’s prime minister, said on November 3 that the government needed more time to assess the risks of the scheme. Since then plans have stalled and worries about the US economy have sent the Hang Seng back near to its levels in August.

The through train would take funds away from mainland China’s overheated stock markets. But mainland shares have weakened considerably in recent weeks, succumbing to the latest wave of subprime turmoil, aggravated by the economic effects of severe winter weather.

Chris Ruffle, a senior fund manager at Martin Currie Investment Management in Shanghai, said that the appetite for investment in Hong Kong was limited, given the fall in mainland stock markets over the past week. Shanghai dropped 7.2 per cent on Monday alone.

“The through train never seemed to me to be a good idea,” said Mr Ruffle. He said the existing qualified domestic institutional investor (QDII) scheme, which allows limited and controlled access to the Hong Kong market, was more attractive to the authorities in Beijing.

By Andrew Wood and Justine Lau in Hong Kong

© Graham Bishop