Wednesday, September 5, 2007

China Delays Buying Hong Kong Stocks

China will hold off from allowing local investors to buy Hong Kong shares directly until rules have been introduced to limit capital outflows, according to three officials at the country's banking regulator.
The State Council blocked the introduction of the share- purchasing program, announced by the State Administration of Foreign Exchange, after concerns were raised by the securities and banking regulators, said the officials, who asked for their names not to be published. China's shares have quadrupled in the past year and valuations are triple those in Hong Kong.

Hong Kong's Hang Seng Index has climbed 18 percent since SAFE's announcement and is today set for its first close above 24,000, while the Hang Seng China Enterprises Index, which tracks the so-called H shares of 41 mainland companies listed in the city, has jumped 31 percent. They're the world's best performers among 89 global benchmarks tracked by Bloomberg.
Hong Kong-listed shares are surging on speculation China's households will pour some of their 17 trillion yuan ($2.3 trillion) of savings into the city's equities once restrictions are relaxed.
The Hang Seng Index and the H-share index are valued at 16 times and 22 times reported earnings, respectively, compared with 52 times for China's CSI 300 Index. All 42 Chinese companies whose shares are listed in both Hong Kong and the mainland are cheaper to buy in Hong Kong, with 18 trading at less than half the price of their China-listed stocks.

QDII Included

Restrictions on China's currency, the yuan, prevent individuals from investing overseas. The government is loosening controls as record trade surpluses drive up the foreign-exchange reserves and complicate efforts to cool the world's fastest- growing major economy.
China last year started allowing banks and brokerages to invest outside of the mainland under the so-called qualified domestic institutional investor, or QDII, program. These investments will also be subject to any new policy regulating capital outflows, according to the three officials at the banking regulator.
China's currency regulator said Aug. 20 that it will allow individuals holding accounts at Bank of China Ltd.'s branch in Tianjin city to buy Hong Kong stocks for the first time. It didn't specify an investment quota or say when the plan can start.
The regulator's lack of specifics didn't deter Li Chuansen. The former Shanghai Electric Group Co. employee, now 54, said he sold his Shanghai apartment for money to buy Hong Kong stocks

So suddenly all the bad news starting to disclose off.......

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