China seen delaying Shenzhen stock link until 2016 amid turmoil

[TAIPEI] China will probably delay the start of a Shenzhen stock-exchange link until next year as authorities focus their efforts on stabilizing the mainland share prices in the wake of a $5 trillion selloff, according to analysts in a Bloomberg survey.

Ten of the 13 respondents said the link with Hong Kong is likely to be pushed back to 2016, while the rest predicted a start by year-end. China Securities Regulatory Commission Chairman Xiao Gang and Hong Kong Chief Executive Leung Chun-ying both said earlier this year that the connect may open in 2015.

Efforts to make China's stock market more attractive to international money managers have been put on the back burner as policy makers intervene to combat a rout that's eroding confidence in the ruling Communist Party's economic management. Foreign investors have sold a net US$4.8 billion of mainland shares through an exchange link with China's biggest bourse in Shanghai since early July, amid doubts over the government's pledge to give markets a more central role in the world's second-largest economy.

"Regulators haven't got the time and energy to consider market reforms and will only push forward after the market stabilizes," said Zhang Gang, a strategist at Central China Securities Co in Shanghai. "It's more likely that the Shenzhen link will start next year, maybe after the second quarter."

Chinese authorities have gone to extreme lengths to prop up the stock market as both the Shanghai Composite Index and the Shenzhen Composite Index lost more than 40 per cent from their June highs. They've banned major shareholders from selling stakes, armed a state-run margin trader with billions of dollars to buy equities, allowed hundreds of companies to halt their shares and placed curbs on bearish bets in the futures market.

The rout in stocks is hampering efforts to link mainland markets to the rest of the world, Hong Kong Exchanges & Clearing Ltd. Chief Executive Officer Charles Li said at a conference in Singapore on Monday.

"Psychologically, this is not the time to talk a lot about mutual market access when you've just put out a fire," he said.

Authorities could use an announcement on the program's launch to help revive investor confidence, said Wu Kan, a Shanghai-based fund manager at JK Life Insurance Co who predicts the link will begin in 2015. The connect could also help authorities realize their goal of winning entry for mainland shares in MSCI Inc's global indexes, which was denied three months ago in part because the country restricts foreign access to its domestic market.

"Since MSCI deferred A share inclusion in June, China may want to further open up its stock markets to the world this year," said Cedric Ma, a Hong Kong-based senior investment strategist at Convoy Asset Management Ltd, which oversees about US$500 million.

China's leadership probably views market stability as a precursor to starting the link, and that may take until at least the first half of 2016 given the country's weak economic outlook, according to Francis Cheung, the head of China strategy at CLSA Ltd in Hong Kong. Chinese exports and imports both declined in August, highlighting tepid demand at home and abroad.

The Shanghai Composite dropped 1.4 per cent on Thursday, paring this week's gain to 1.2 per cent.

"Turbulence in the market makes launching a program of that complexity challenging," said Gerry Alfonso, a sales trader at Shenwan Hongyuan Group Co in Shanghai. "I would assume we need to wait until the market has fully normalized, and that could take some time."

Brokerages and money managers that participated in the survey include Macquarie Securities, Xiangcai Securities Co, Bocom International Holdings Co, Delta Asia Securities Ltd, CMB International Securities Ltd, Dongxing Securities, Hengsheng Asset Management Co and Wanjia Asset Management Co.

BLOOMBERG