Today the Chinese government annonced it will allow certain individuals in a test run to invest in the Hong Kong stock market. The average Chinese company listed in Shanghai has a price to earnings ratio of 50 while those same companies listed in Hong Kong have an average price to earnings ratio of 18. Will this mean that Chinese companies prices listed in Hong Kong will surge and the Shanghai prices go down to share the same ratio.
Only Chinese nationals with a Bank of China Ltd. account in Tianjin’s Binhai economic zone will be able to use foreign currencies in Hong Kong stocks. Neither was a maximum amount per investor mentionned. It is not yet clear if Chinese citizens will be allowed to purchase foreign shares and funds listed on the Hang Seng. We do have to remember that China controls Hong Kong.
Only Chinese nationals with a Bank of China Ltd. account in Tianjin’s Binhai economic zone will be able to use foreign currencies in Hong Kong stocks. No maximum investment was mentionned nor the start date.
Could this be a backdoor for the mainland to take over the Hang Seng and more control of Hong Kong companies? Or could this be the first step towards a merger between the Hong Kong and Shanghai stock markets. In any case this will be an outlet for Chinese traders and lower the risk of a Chinese bubble. The number of brokerage accounts has surged. Already this year six times more accounts have been opened than last year.
http://www.bloomberg.com/apps/news?pid=20601080&sid=aySzbvehA5xA&refer=asia
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