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Hong Kong, Shanghai open landmark stock link

November 17, 2014

A trading link between Hong Kong and Shanghai giving foreign investors wider access to mainland China's restricted equity market has opened. Meanwhile, Japan surprisingly slid into recession, pushing the Nikkei south.

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China Börse Hongkong Shanghai
Image: Reuters/Bobby Yip

Officials in Hong Kong and Shanghai ceremonially banged gongs on Monday morning at the start of trading under the new Shanghai-Hong Kong Stock Connect platform, allowing investors to buy and sell shares through each other's exchanges.

"Today we are going to witness history," said C.K. Chow, the chairman of stock exchange operator Hong Kong Exchanges and Clearing, at the opening ceremony. "It is a breakthrough in the opening up of China's financial markets and an important milestone in the development of Hong Kong as a unique gateway between the mainland and international investors."

In Shanghai, Xiao Gang of the China Securities Regulatory Committee said that "China's capital markets now face historic opportunities."

No major impact on Monday's numbers

The two indexes briefly opened up around 1 percent each, but swiftly shed those gains. Traders had already factored in the new link-up ahead of Monday's opening, analysts said.

"The market had already responded to the stock link," Andy Wong, senior investment analyst at Harris Fraser (International) Ltd in Hong Kong told Reuters. "Short-term investors are taking profits from the market."

Initially scheduled to open late last month, but delayed, the project received the definitive green light one week ago.

The new link allows international investors access to stocks traded in mainland China, and also grants wealthy Chinese investors the chance to purchase shares off the mainland. Trade in both directions remains subject to restrictions, however, at a daily total of 23.5 billion yuan (3 billion euros, $3.8 billion). Up to 13 billion yuan is the limit for international investors buying mainland stocks; the remainder can be spent in Hong Kong.

Hong Kong has officially been a part of China since Beijing took control of the former British colony in 1997, but under the terms of the handover agreement the Asian financial hub retains broad legal and financial autonomy.

Japan dips into recession

G20 Gipfel in Brisbane Obama Abbott Abe
Japan's Prime Minister Shinzo Abe (r.) returned from the Brisbane G20 to troublesome economic newsImage: Reuters/K. Lamarque

In Tokyo, the Nikkei index backslid on Monday morning, after the unexpected announcement that Japan had slipped into recession.

Japanese GDP contracted year-on-year by 1.6 percent in the July-September quarter, compared to the 2.1-percent increase predicted by economists in a Reuters poll. Following on from a 7.3-percent contraction in the previous quarter, the figures put Japan into recession.

The silver lining, of sorts, was that the turmoil on the Nikkei helped Japan's yen currency rebound from a fresh seven-year low against the dollar. At one point early in Monday's trade the dollar rallied as high as 117.06 yen, but had fallen back down below 116 yen later in the day.

msh/av (AFP, AP, Reuters)