Hong Kong Stock Exchange Opens to the Mainland

Filed in archive Stocks on August 28, 2007

In Shanghai, factory workers and farmers from across Mainland China bring their nest eggs to the Shanghai Stock Exchange and gamble with it, looking for signs and omens to direct their efforts. At least that's the stereotype. By way of contracts, Hong Kong sees savvy businessmen and foreign investors read portfolios and prospectuses and invest money in companies listed on the Hong Kong Stock Exchange (HKEX). Until now...

Earlier this month the HKEX was opened up to mainland investors. The move will probably change the nature of investing in Hong Kong over the long term.




In an August 21st piece for DealBook in the New York Times, Andrew Ross Sorkin discusses the policy change. Sorkin's lead calls the policy move, "the most significant move to date by Beijing officials to dismantle the barriers that prevent most Chinese from making international investments."

The move is also intended to have some other impacts. Chinese citizens now have a place to invest their money other than Shanghai. The Beijing government undoubtedly hopes that that will help slow the burning growth rate of the Shanghai Stock Exchange. As Chinese invest in foreign companies listed in Hong Kong, the new policy could also help shrink the trade deficit.

The day after the opening of the HKEX to Mainland investors, the Hang Seng index in Hong Kong jumped 5.93 percent. That was the biggest one day jump in almost a decade. Yesterday (August 27, 2007) the Hang Seng reached a new all time high. Frederic Ruffy at Optionetics looks at some of the big gains on the HKEX. Today seems to be headed for some profit taking...

The HKEX has long been a more stable, predictable market place than the Shanghai Stock Exchange. With the coming of new money from the Mainland, The HKEX is likely to take on more of the flavor of Shanghai. The next few month on the HKEX will likely be volatile...