mql5

The People’s Bank of China spat a good amount of lighter fluid on the global equity market rally at the end of a week that saw the launch of a program designed to provide two-way access to mainland and Hong Kong markets. Friday’s cut in official lending rates by the central bank is the first since July 2012 and follows a series of policy interventions aimed at indirectly stimulating its economy. Both European benchmarks and US stock index futures responded with enthusiastic advances to the reduction in borrowing costs. Notable is the fact that until just three months ago, the Shanghai composite index remained lower than when the PBOC last eased its policy in July 2012.



The Chinese stock market, deprived of the type of global liquidity afforded to the former colony of Hong Kong, came to life following the April announcement of the timeline for a two-way link. Only since August have domestic investors dashed back into Shanghai listings in the hope that the rally will grow as global investors approve of the Connect program.

While the initiative got off with a bang at the start of the week, optimism faded as appetite dropped and traders failed to push buying to reach the maximum daily quota. As investors have been able to invest in H shares for some time while Shanghai is the far larger market, the start of trading confirmed the allure from South to North. And while there has been much talk of the tepid volumes from North to South, many commentators are ignoring the fact that those desiring access to the HK markets from China have largely been able to do so for a number of years at lower cost as long as they have had money overseas. The Shanghai market on the other hand has been inaccessible to those without QFII or the ability to open a bank account in China.

My Hong Kong-based colleague David Friedland, buried under a mountain of account opening applications to trade via the newly established link, noted that onlookers are off base by looking purely at the first week’s volumes. David notes that stock prices and volatility have dropped across the board since Monday. “But the bigger story is the opening of China, removing the daily restriction on converting 20,000 RMB in Hong Kong, and perhaps since there wasn’t a flood of money into China and only filling up around 7% of $300 billion of quota, it may ease fears of an imbalance of currency flows and hence lead towards further opening of the currency,” David told me.

the source