Five things to note as the market trades this week, Nov 17-23

A banner introducing the Shanghai-Hong Kong Stock Connect is displayed in front of a panel showing the closing blue-chip Hang Seng Index at the Hong Kong Stock Exchange in Hong Kong on Nov 10, 2014. -- PHOTO: REUTERS 
A banner introducing the Shanghai-Hong Kong Stock Connect is displayed in front of a panel showing the closing blue-chip Hang Seng Index at the Hong Kong Stock Exchange in Hong Kong on Nov 10, 2014. -- PHOTO: REUTERS 

1. China opens its doors

In a watershed event, the trading link between Shanghai and Hong Kong launches on Monday. Global investors will be able to use the Shanghai-Hong Kong Stock Connect to purchase US$49 billion of shares listed in Shanghai, expanding access beyond a handpicked group of fund managers. Chinese citizens, in turn, can invest US$40.8 billion in Hong Kong's market, the first time they have been allowed to buy stocks outside of the mainland.

The scheme has the potential to give a major boost to China's stock market, turn Shanghai into a global financial centre and boost the global use of the yuan. It also both boosts and binds Hong Kong's future as a financial centre to the mainland.

Many large global and Chinese banks have been working feverishly to prepare for this day since the scheme was first announced in April this year. Goldman Sachs estimates that it has had at least 150 people working a total 30,000 man-hours preparing for the launch, the Wall Street Journal reported.

To encourage a positive start, China announced last Friday it will temporarily waive capital-gains taxes for foreign investors using the Shanghai-Hong Kong connect to buy yuan-denominated A-shares.

But uncertainties remain about how smoothly the link will function given the different trading hours, regulations and settlement systems across the border.

2. Make-or-break GDP data for Abe and Abenomics

It's decision time for Japan's prime minister Shinzo Abe, with markets anticipating that poor third quarter GDP figures out on Monday morning will be the catalyst he will use to call a snap election and postpone a second sales tax hike. The tax rises were aimed at paying down Japan's huge national debt to balance out Abe's pro-spending growth plan dubbed Abenomics.

But Abenomics has disappointed. According to AFP, economists are expecting 3Q GDP growth of 2.47 per cent. While that would sidestep a technical recession, after the Japanese economy shrank 7.1 per cent in the second quarter, it will be a far cry from the 6 per cent growth enjoyed in the first three months of the year.

The Bank of Japan also announces its latest monetary policy decision on Wednesday. Late last month, the BOJ stunned markets by increasing its massive bond buying programme to 80 trillion yen.

3. What will the Fed do?

Very early on Thursday morning, Singapore time, the US Federal Reserve is due to release minutes from its latest Federal Open Market Committee's meeting on Oct. 28-29. Markets will be parsing the minutes for any hints as to when the US central bank will begin raising record-low interest rates. Most economists expect to see a hike in rates during the middle of next year.

Several economic data releases though the week will offer a check on how the US economy is doing: Producer and consumer prices, housing starts, existing home sales and regional manufacturing indices.

4. More woe for the euro zone?

Fallout from the Ukraine conflict is exacerbating the euro zone's problems, with European sanctions squeezing Russia's banks and companies and having knock-on effects particularly on Germany. Its chancellor Angela Merkel said at the G20 leaders'summit on Saturday in Brisbane that the European Union was considering further financial sanctions against Russian individuals because of the crisis.

The Zew economic sentiment index, out on Tuesday, will provide more insight into business confidence levels in the euro zone while Markit's release on Thursday of its flash manufacturing and service PMIs will offer a snapshot of whether companies are expanding in Germany, France and across the currency bloc.

5. The spillover to Singapore

The knock-on effects on Singapore's economy of a stagnating euro zone, a wavering Japan, slow growth in China and stronger recovery in the US will be seen in the data for October's non-oil domestic exports out on Monday. We remember that Singapore's September exports disappointed because of a drop in demand from the euro zone - our largest export market.

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