BIZCHINA / News
HK-mainland market link worth effort
By Hong Liang (China Daily)
Updated: 2007-02-27 10:23
The apparent dismissal of proposals to link the Hong Kong and mainland
stock markets as infeasible by Hong Kong Exchanges and Clearing Chief
Executive Paul Chow Man-yiu might seem most discouraging to the
government officials and economists who have shown great enthusiasm and
support for the idea.
His remarks were seen in Hong Kong as a refutation to a suggestion made
earlier by Fang Xinghai, deputy director of the Shanghai government's
financial services office. Fang recommended that a platform be created to
trade shares in the 38 companies dually listed in Hong Kong and Shanghai.
But it is wrong to see Mr Chow's comments as entirely negative. He was
quoted by Hong Kong media as saying that unless the yuan is fully
convertible, stocks in the two places cannot be freely circulated.
However, he added that expanding the existing QDII, or qualified domestic
institutional investors, and QFII, qualified foreign institutional
investors, mechanisms could be the foundation for such a link.
That was more or less what Hong Kong Monetary Authority chief Joseph Yam
has been saying all along. In one of his recent essays, Mr Yam, a strong
proponent of the link, wrote that a merger of the two stock markets isn't
an option in the present regulatory environment.
Acknowledging the hurdle posed by the restrictions on currency
convertibility, particularly in the capital account, Mr Yam contends that
it is still feasible to establish a channel that "would have the effect
of pooling the various financial markets of the two jurisdictions,
providing much greater liquidity and much more efficient price discovery".
As an illustration of how such a channel could be built, Mr Yam cited the
use of the QDII and QFII schemes. He also noted the possibility of
creating derivative instruments for trading in both markets with an
arbitrage mechanism to equalize prices.
It is obvious that efforts to establish any form of link between the two
markets must be initiated by the respective government authorities
because it would invariably involve a host of regulatory issues. It is
not surprising for people in the private sector to remain skeptical
because their money could eventually be put at risk.
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(For more biz stories, please visit Industry Updates)
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