22 August 2019
HKEx chairman Chow Chung-kong (second from left) and Hong Kong Chief Executive Leung Chun-ying (second from right) prepare to strike the gong to mark the launch of Stock Connect. Photo: Bloomberg
HKEx chairman Chow Chung-kong (second from left) and Hong Kong Chief Executive Leung Chun-ying (second from right) prepare to strike the gong to mark the launch of Stock Connect. Photo: Bloomberg

With Stock Connect, it’s time to ponder HK dollar’s future

To retail investors, the Shanghai-Hong Kong Stock Connect launched earlier this month is nothing more than a two-way channel for cross-boundary transactions.

Since the fundamentals of the two bourses are largely unchanged, the linkage won’t be an incentive for rational, long-term investors to plunge in right away.

Before the linkage, the Hong Kong stock market had witnessed two rounds of rallies driven by bullish outlook but the sizzle soon fizzled out.

Since the Nov. 17 launch of the scheme, market reaction has been lukewarm, even anti-climactic, with both northbound and southbound quotas substantially underutilized.

Now, some experts point out that given the fact that a large number of Hongkongers have mainland accounts for investment in A shares and many domestic brokers are just a phone call away for mainlanders wishing to invest in the Hong Kong market, the fewer than expected ridership on the stock through train shouldn’t be much of a surprise.

But I fail to grasp the rationale behind the experts’ silence when policymakers were discussing the scheme.

Chief Executive Leung Chun-ying spared no effort in greasing the process, as did mainland cadres including Shanghai mayor Yang Xiong.

Now, with the tepid transactions, they are beginning to look like they have been too optimistic.

The scheme was first put forward by Premier Li Keqiang at this year’s Boao Forum. Observers say the move bears the hallmarks of China’s strategy to ramp up renminbi internationalization and speed up reform in the capital market.

Secretary for Financial Services and the Treasury K C Chan revealed that the scheme was the result of years of policy research and coordination.

Furthermore, it is said that Leung was directed by Beijing to ensure a smooth and timely implementation.

So we have reason to believe that Beijing wanted the linkage to contribute to a broader master plan of financial reform. But whether it can bring benefits to retail investors is irrelevant (even not in Beijing’s mind).

Nearly all of the government-led policies and initiatives in recent years have failed to yield satisfactory results and Stock Connect is no exception.

Almost everyone has joined the chorus praising the link in the past months but why have there been no objective views?

Perhaps people are afraid to speak frankly about a “well thought-out” plan that is an out-and-out “political decision”.

The bourse link is designed to promote the renminbi’s role. When the Chinese yuan rises to worldwide prominence in the near future, the fate of Hong Kong’s own currency will have to be seriously considered.

The Hong Kong dollar is likely to be marginalized when the renminbi becomes widely accepted around the world, although it will remain legal tender until 2047, according to the Basic Law.

But change is unavoidable and Hongkongers, especially those whose assets are in Hong Kong dollar, need to take precautions.

The Hong Kong currency could be replaced by the renminbi even before 2047 and we all need to prepare for that.

Indeed, converting assets into the Chinese yuan can be beneficial. The only question is when to switch and at what exchange rate.

This article appeared in the Hong Kong Economic Journal on Nov. 25.

Translation by Frank Chen

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A famous Hong Kong writer; founder of the Hong Kong Economic Journal

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