HK chief links exchange delay to protests

Hong Kong chief executive CY Leung has drawn a direct link between pro-democracy protests and the delay to a high-profile equities trading platform that had been billed as key to the territory’s financial future.

Speaking on Tuesday, Mr Leung said he would press Beijing for a launch date for the so-called stock connect during an official visit next week, but added that “co-operation” was needed from those in Hong Kong who are “threatening the rule of law”.

“As we fight for stock connect, and as Hong Kong continues to develop as an international and national financial centre, we need the entire society to co-operate, and I hope that we can restore our social order as soon as possible,” Mr Leung said.

The stock connect was first announced six months ago, and will allow global investors far freer access to companies listed in the mainland. In return, Chinese investors will be able to trade in Hong Kong-listed shares for the first time.

The scheme marks the most significant development towards integrating China’s financial markets with the rest of the world in many years, and is an important step towards a more open capital account. A successful launch could also pave the way for Chinese equities to be added to global indices, potentially drawing hundreds of billions of dollars into mainland markets.

Many market participants had been expecting the project to launch formally last month. However, the Hong Kong stock exchange announced on October 26 that the scheme was still awaiting regulatory approval and that no launch date had been set. Days later, Hong Kong regulators said that its work has been completed.

No official reason has yet been given for the apparent delay, though many have blamed local politics. Chinese state media reports have also pointed the finger at “illegal protests” for the hold-up.

“It feels like a punishment,” said one senior investment banker. “We have spent a fortune in resources and time – we are ready to go.”

A number of key issues around the complex trading scheme have yet to be resolved – such as the tax rate due on foreign holdings of Chinese stocks. Those uncertainties prompted Asia’s financial markets industry body, Asifma, to write to regulators to plea for sufficient notice ahead of the formal launch.

Mr Leung’s comments provide the first official indication that progress of the stock trading link may have been directly affected by the student-led protests, now into their second month.

Analysts have warned that the delay could be viewed as a symbol of Beijing’s disquiet over the protests, with potential longer-term effects on Hong Kong’s place as a financial centre.

“Any prolonged delay of the stock connect programme beyond the planned October start will again reignite worries on whether the Chinese government has changed its stance in supporting Hong Kong financial developments in the long run, taking a toll on business sentiment and investment plans,” wrote Citi economists in a recent report.