BoA Merrill Lynch: Delay will not lead to huge capital outflow from the SAR

The much-heralded Shanghai-Hong Kong stocks cross-trading scheme can be expected to be launched by the end of this year although it has been put on hold indefinitely, according to leading investment house Bank of America (BoA) Merrill Lynch.

It also believes there won't be any capital outflow from Hong Kong as a result of the delay, saying that all the preparatory groundwork for the Shanghai-Hong Kong Stock Connect (Stock Connect) is already in place.

Hong Kong Exchanges and Clearing Ltd (HKEx) said on Sunday that no firm date has yet been set for the scheme's launch as HKEx has yet to receive the nod for the "through train" to start.

"All the preparatory groundwork for the Stock Connect is ready and it just needs to press the button to start the program. I cannot think of any significant reason that can cause a significant delay. It will be very much the chance that the Stock Connect can be launched by the end of this year," BoA Merrill Lynch's head of Asia Pacific equity strategy David Cui said.

"Unless the delay is significantly long, otherwise, the short delay time will not lead to a huge capital outflow from the Hong Kong equity market," he added.

The Hong Kong Securities and Futures Commission and the China Securities Regulatory Commission announced the Stock Connect platform in April this year, and the financial markets of Hong Kong and the mainland expect the program to kick off sometime in October.

"The implementation of the Stock Connect will facilitate more trading in the long run. However, capital inflow into the Hong Kong share market will be relatively less compared to the capital inflow into the mainland's equity market. This is because the A-share market offers much broader stock picks than its H-share counterparts, and investing in the A-share market is also a good bet on the yuan's appreciation," Cui noted.

Cui also cautioned that implementing the Stock Connect scheme may put single-digit downward pressure on the A-share market because its launch may eliminate the current price premium in the A-share market, compared with the H-share market in Hong Kong.

The scheme will allow mainland investors to trade in 266 Hong Kong-listed shares and reciprocally, it also permits Hong Kong and overseas investors to trade in 568 Shanghai-listed A-shares.

oswald@chinadailyhk.com

An investor checks stock prices at a securities firm in Shanghai. Although the Hong Kong Stock Exchange says there's no firm kick-off date for the launch of the Stock Connect scheme, BoA Merrill Lynch is confident that the program will start by the end of the year. AFP

(HK Edition 10/28/2014 page8)