The Stock Connect program between Hong Kong and Shanghai can be extended to regions outside China in the future, an economist at J.P. Morgan said on Thursday.
“Cross-border investment only accounts for a low level in the A-share or bond market in China. It’s just about 2 percent when factoring in the Hong Kong-Shanghai Stock Connect program, while the number is about 10 percent in other emerging markets,” said Zhu Haibin, chief China economist and head of Greater China Economic Research at J.P. Morgan.
Zhu said there is still plenty of room for cross-border capital flows, adding that he sees no big problem in promoting the stock connect program to other markets.
It has been reported that Japan Exchange Group Inc., operator of the Tokyo and Osaka stock exchanges, wants to join the equity-trading link between Hong Kong and Shanghai.
Hiromi Yamaji, chief executive of Osaka Exchange Inc., told Bloomberg in an interview that the Chinese market is very imporant for the company, although he did not specify how it intends to join the trading link.
Despite concerns over the delay of the Stock Connect, Zhu said both the Hong Kong and Shanghai markets are in the rehearsal stage, which shows that the scheme is progressing.
“There was no official launch date [for the program]. But now the delay is compared with market expectation. But until now, there is no sign showing that it will be canceled, it is just a delay,” he said.
Adrian Mowat, J.P. Morgan’s chief Asian and emerging market equity strategist, said the market is still optimistic the program will be launched this year.
The telecommunication, technology and consumer sectors in the A-share market are likely to benefit the most after the stock connect program starts, he said.
As for the Hong Kong stock market, Mowat also highlighted the telecommunication and technology shares, but said that gaming stocks, surprisingly, are not too attractive for mainland investors.
“The feedback was that because they do not have any gaming stocks locally. It’s not an industry that they understand and are comfortable with,” he said.
Mowat said he doesn’t think the ongoing Occupy movement will have any material impact on the financial markets, noting that the MSCI Hong Kong index has been performing better than MSCI China index since the street blockades started.
“I do not get the impression from interacting with investors that this is a significant issue,” he said.
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