The market has closed on an era of trading in China. No longer will trading be conducted with foreign individual investors barred from holding Chinese-board listed stocks! Hooray!
I will get into some more details of the market and provide a few charts on that later, but as there have been a lot of breakouts I would prefer to release one big charts package across currencies, indices and commodities tomorrow (morning?) instead, when the markets have closed. I will hopefully be able to pad that out throughout the weekend with some other statistical analysis (hopefully) so make sure to check back during the weekend.
China, however, threw a rather sneaky treat into the punch bowl to ensure higher trading after the markets open on Monday: scrapping the capital gains tax for foreigners! This is currently sending the HSI and HSCEI futures higher in post-close futures trading, implying somewhere around 0.75% net positive effect. The smudge of worry is that the institutional tax waiver is temporary for an unknown period of time, but judging by the previous tax collection enforcement this might be an indefinite temporary with a rather long tail. It is definitely a positive to remove the 20% wet blanket that mainland investors have to carry, and the exemption from capital gains tax into 2017 for individual investors into Hong Kong will probably mean that there will be a lot of interest from wealthier Chinese. This together with the day trading allowance seems to target liquidity and market moves on the first day of trading, and will probably mean a lot of goodies to come to the related indices.
For all intents and purposes though, the definition of these “wealthier Chinese” is somewhat prohibitive for large, mass-scale adoption of the program. A mainland investor will require RMB500 000 of liquid assets in their account before getting access to the Shanghai – Hong Kong Stock Connect. This is a very big sum of money to have lying around in an account in China and probably limits access to entrepreneurs and CCP bigwigs. Not that there aren’t a lot of those in absolute numbers, but the overall effect on liquidity and investable contracts access in China will be very small.
Want to have a good chuckle though? Check out this article by Bloomberg. The statement by the ASIFMA chairman that sets it all up is golden comedy, especially in light of China’s overall equity market capitalization and financing structures. As I’ve mentioned before, you’re not being catered to as an equity investor, China invites you to play along in its playground as long as it is good for China, and asking a country to change its procedures “at the snap of a finger” is obviously a lot easier than a few institutions actually keeping their equity queued for sale. Keeping positions at joint custodian/broker service providers also apparently alleviates the problem, and thus it doesn’t seem so bad any more. Worried about your broker front running you? Uh… not saying you’re wrong, but you probably have bigger worries than this arrangement then…
Seeking Symmetry in Securities 