| | Thoughts amidst turbulence - Week ending 8/9
The hilarious HK-China stock express scheme fiasco remains unresolved, with exact details of the scheme to allow China individual investors to buy stocks listed in HKEx still in limbo. On Tuesday, Hong Kong Economic Times reported that the minimum investment threshold will be RMB 300,000 for each investor.
As background information, according to the 2007 World Wealth Report by Merrill Lynch, there were about 345,000 High Net Worth Individuals in the Mainland in 2006 (HNWIs, individuals with financial assets over US1 million, or around RMB 7.5 million using recent exchange rate).
So how much money will flow to Hong Kong? Because money can be lumped together - on a household basis amongst members, on a friendship basis, on other "blackmarket" channels (pool together and invest the money in a pre-determined list of stocks e.g. HSI and HKCEI related securities etc.), the exact amount of capital will be impossible to be estimated.
I would like to address one point right here. But just give some background information. One of the criticisms for previously state-owned enterprises listing in Hong Kong is that due to capital control, people in the Mainland cannot enjoy fruits of rapid economic development and privatisation through buying the shares of these enterprises. Particularly given the fact that stock prices of these enterprises skyrocketed (JUST look at China Mobile 0941.hk), this is a de facto "selling nation's assets at pathetic prices" (賤賣國家資產) to "foreigners" - Hong Kong has no capital control and everyone can so buy the Mainland assets.
So when this Stock Direct Express Scheme is announced, many commentators believe this situation is about the change. Everyone in the Mainland can enjoy the fruits of economic growth, buy a stake in state-owned assets etc. Yet with its actual implementation date in limbo and the expected high hurdle - Because we need to protect financial security and stability (the Official answer), Because we need to protect our vest interests in the Mainland (the Hidden agenda), only the richer ones can apply for the Scheme. What a titled but shadow policy towards the wealthy ones, not to mention the physical location of the BOC, TianJin, is also on the wealthier eastern coast.
And after market closed on Friday, the Exchange Fund has declared a 5.88% shareholding in HKEx. Basing on the press release by the Financial Secretary, quoting that "this acquisition underlines the Government's support for HKEx and
enables the Government, over the longer term, to contribute as a
shareholder to the promotion of HKEx's strategic development", there are three extremely weird dimensions :
(1) The ordinance related to HKEx stipulates that unless approval is given, no individual investor can hold over 5% share of HKEx. And... the approval can only be given by the Financial Secretary, who is now the investor (through the Exchange Fund). So we have individual approving himself for this. The Player and the Official is now the same person;
(2) It is not a common practice for the Government to "invest" in private companies for various reasons. Will it be ridiculous for the Hong Kong Government to invest Hong Kong Electric or China Light Power, over which the Government also regulates? And the Exchange Fund and HKMA is to maintain the monetary and banking stability of Hong Kong. It is NOT to achieve purpose other than that.
(3) And if it is to establish a strategic cross-holding between HK and Mainland on stock exchanges, it is NOT necessary for the Government to buy a stake in a private, profiteering, listed company for achieving so. As a private company, with the blessing of the HKSAR Government, the company can itself establish that strategic cross-holding. Did the Government buy CX (0293.hk) before its strategic cross-holding with AirChina (0753.hk)? No.
This is a very ridiculous transation and should deserve condemnation, through we must also recognize that with the Government's being its stockholder, HKEx will continue to receive favourable policy treatment from the Government. The price of HKEx will skyrocket on Monday and probably reach HK$170 next week. But investors should be caution that, then HKEx will be subject to higher regulatory and policy risk of BOTH the Hong Kong and Mainland Government in the longer term.
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| | Posted 9/8/2007 10:30 PM - 63 Views - 2 eProps - 2 comments
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