HK market benefits from China turmoil

Territory's seasoned financial hub looks to be a safer entry point to mainland markets

HONG KONG • Less than a year after huge street protests prompted a rethink about investing in Hong Kong, a wild four-week ride in mainland China's stock markets makes the city's financial hub look like a beacon of seasoned stability.

China's many-pronged state intervention in its markets, aimed at steadying share indexes that plunged by close to a third, has played to Hong Kong's appeal as a thriving investment hub, with rule of law, free market policies and an independent judicial system.

It seems to be a safer entry point for those wanting a piece of China in their investment portfolios. In quick time, the notion that Shanghai or Shenzhen can play a role as a major international financial hub has been put back, potentially, by some years.

But, analysts are hopeful China will get things right in the long run.

"China's misfortune may prove to be Hong Kong's gain," said Mr Mark Konyn, chief executive at Hong Kong-based Cathay Conning Asset Management.

RETHINKING HONG KONG'S ROLE

China's misfortune may prove to be Hong Kong's gain. The Hong Kong market remains a reliable and well-governed alternative for China exposure and could represent good value once the dust settles.

MR MARK KONYN, chief executive of Cathay Conning Asset Management

"The Hong Kong market remains a reliable and well-governed alternative for China exposure and could represent good value once the dust settles."

Beijing's careful measures in recent years to open up its economy to global investors and internationalise its yuan currency - and a doubling in its stock market value in just a few months - had begun to cast a shadow over Hong Kong's role as the gateway to China.

But the policy bazookas lobbed at rescuing investors nursing losses of more than US$3 trillion (S$4 trillion) suggest Beijing is far from ready to let markets loose.

"The past couple of weeks was a big wake-up call to everyone," said Mr Richard Ji, Hong Kong-based founder of All-Stars Investment Ltd, which manages about US$900 million in Internet-related companies.

China's heavy-handed market management - cutting interest rates, suspending initial public offerings, easing margin lending and collateral rules, and corralling brokerages into buying stocks and major shareholders into not selling them - led to stocks surge on Friday, reversing an early-week slump as markets regained a measure of composure. The CSI300 index of the largest listed companies in Shanghai and Shenzhen was up around 12 per cent in two days.

China will eventually get things right but, for now, has lost some credibility, said the head of equity capital markets at a foreign bank in Hong Kong, who did not want to be named. The market turmoil may prove a setback for Beijing's lobbying for Chinese shares to be included in global indices, such as MSCI's Emerging Markets Index, which would draw in foreign capital.

"Any goodwill they developed with the MSCI, they have to rebuild that trust. At the moment, they need to get the market back on track," the banker said.

In Shanghai, the mood is bruised, but not down.

"It is going a bit too far" to say that Shanghai will lose its competitiveness and that capital market reform will be derailed, said Mr Hong Hao, who is managing director and chief China strategist at Bocom International.

"This is a market failure, but I don't think the big direction of reforms and opening up of China's capital market has changed."

REUTERS

A version of this article appeared in the print edition of The Sunday Times on July 12, 2015, with the headline 'HK market benefits from China turmoil'. Print Edition | Subscribe