Brokers are no closer to knowing when a link between Hong Kong and Shanghai’s stock exchanges might begin as a six-month deadline runs out.
Chinese stocks erased gains in the two locations on Friday after Hong Kong Exchanges & Clearing Ltd chief executive officer Charles Li (李小加) said there is no timetable for the program.
Last month, he said the link might begin on a Monday this month, which would leave Monday next week as the last start date.
When China’s Premier Li Keqiang (李克強) unexpectedly announced the plan to connect the two exchanges in an April 10 speech, regulators said the link would begin in six months time.
The lack of a definitive commencement is raising questions over the readiness of regulators and brokers for the program that plans to give overseas investors unprecedented access to Chinese shares.
“Undoubtedly this means a delay, but for how long, that will now be the biggest question,” CLSA Ltd global head of trading and execution Andy Maynard said in Hong Kong. “Some investors will be slightly frustrated as they have done considerable work to be ready in time.”
Connecting markets with different trading rules, regulators, currencies, taxes and holidays has occupied brokers since the link was unveiled in April.
Exchange officials and traders in Hong Kong and Shanghai have spent weekends testing systems, clearing and settlement in readiness for the start, including a full trial in August.
“We don’t have a timetable,” Li said on Friday. “Whether it’s announced today, tomorrow, the day after, two days after, or any other day, it is not important which day it is going to be announced, people shouldn’t read too much into the timing of it. The main issue is that we are prepared for the starting gun.”
Li added that any announcement of the start date would not be made “unilaterally” by a regulator.
The Shanghai Composite Index tumbled as much as 1.9 percent after his comments, while the Hang Seng China Enterprises Index reversed a gain of 1 percent to fall as much as 0.9 percent before recovering some of its losses.
Stocks had risen on speculation the China Securities and Regulatory Commission (CSRC) would announce Monday next week as the start at a regular briefing on Friday.
The Shanghai Composite has climbed 11 percent since April 9 on the prospect of overseas inflows.
Investors opened the most accounts to trade mainland A shares in more than two years in the last week of last month, according to official data.
“Without a timetable, the market is obviously disappointed,” said Hao Hong (洪灝), a strategist at Bocom International Holdings Co (交銀國際) in Hong Kong. “Because A shares were supposed to be a bigger beneficiary due to direction of fund flows, they are reacting worse.”
Hong Kong’s Securities & Futures Commission (SFC) and the CSRC signed a memorandum of understanding on Friday to share information on risks and alerts on suspected misconduct under the link program, according to a statement by the SFC.
China is counting on a successful bourse link to help liberalize its financial system and increase the use of the yuan.
Existing rules restrict overseas money managers to foreign currency-denominated B shares, while only those approved under the qualified foreign institutional investor program can invest in yuan-denominated A shares.
The link, which allows a net 23.5 billion yuan (US$3.8 billion) of daily cross-border purchases, is set to also help Hong Kong strengthen its status as a gateway to Chinese markets as the government tries to end pro-democracy protests that have blocked some streets in the business district for three weeks.
Delays on the Chinese side are probably holding back the link, Maynard said.
“My speculation is that the southbound brokers are not ready, and voiced their concerns and asked for more time,” Maynard said.
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