Look out for the proxy
May 15th 2007 13:56
The Monday upsurge in Hong Kong's stock market was nothing more than an overreaction to the Chinese banking regulator's limited lift for its domestic banks, on behalf of its clients, to invest in overseas equities. It was all but an illusion of a tsunami of funds from the mainland flooding the overseas markets and of course, Hong Kong, the apparent prime beneficiary.
Nonetheless the new ruling is seen as a positive move despite having a cap but it set the right mood for a preparation to welcome the abundant mainland funds in the future. After all, those funds sitting in the vaults need to let off some steam that would otherwise be channeled by the army of small time savers on the mainland stock market and drive values to what we are seeing now.
Monday's record breaking performance was lead by the Hong Kong-listed mainland shares, known as H-Shares and its mainland equivalent as A-Shares, rang some bells, although the H-shares are no where near the astronomical price level of the A-Shares in Shanghai, they are still way beyond the fundamentals. And investors in the territory recognize this, as both type of shares attempt to match each other.
But what differentiates the two is that the H-Shares will be more reflective of rational underlaying and their relative quick correction movements.
As analysts around the world are expecting for China's market downturn, which is only a matter of time, perhaps it would be wise to observe the movement of H-Shares in Hong Kong as a proxy for what is going to unfold on the mainland.
The state of the market in the near term, as fore casted by the analysts and soothsayers, are pointing the same direction but lets not forget about Beijing Olympics 2008. We might expect the Chinese government to be the hero of the day. Since February this year, we saw the global effect of the Chinese stock market. It is no longer an island itself.
Napoleon Bonaparte was right.
Nonetheless the new ruling is seen as a positive move despite having a cap but it set the right mood for a preparation to welcome the abundant mainland funds in the future. After all, those funds sitting in the vaults need to let off some steam that would otherwise be channeled by the army of small time savers on the mainland stock market and drive values to what we are seeing now.
Monday's record breaking performance was lead by the Hong Kong-listed mainland shares, known as H-Shares and its mainland equivalent as A-Shares, rang some bells, although the H-shares are no where near the astronomical price level of the A-Shares in Shanghai, they are still way beyond the fundamentals. And investors in the territory recognize this, as both type of shares attempt to match each other.
But what differentiates the two is that the H-Shares will be more reflective of rational underlaying and their relative quick correction movements.
As analysts around the world are expecting for China's market downturn, which is only a matter of time, perhaps it would be wise to observe the movement of H-Shares in Hong Kong as a proxy for what is going to unfold on the mainland.
The state of the market in the near term, as fore casted by the analysts and soothsayers, are pointing the same direction but lets not forget about Beijing Olympics 2008. We might expect the Chinese government to be the hero of the day. Since February this year, we saw the global effect of the Chinese stock market. It is no longer an island itself.
Napoleon Bonaparte was right.
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