China stocks head for longest 2014 losing streak on link delay

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SINGAPORE (Oct 27): China’s stocks fell for a fifth day, sending the benchmark index toward its longest losing streak this year, amid concern the delay to the start of the Hong Kong- Shanghai bourse link will sap demand for shares.

Citic Securities Co. and Haitong Securities Co., the nation’s biggest-listed brokerages, dropped more than 2 percent in Shanghai and Hong Kong. Hong Kong Exchanges & Clearing Ltd. plunged 4.6 percent after Charles Li, the chief executive officer of the bourse operator, said he had no idea when authorities will give the green light to proceed on the link. Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co. slid to a three-month low after third-quarter profit dropped.

The Shanghai Composite Index slid 0.7 percent to 2,285.66 at 9:53 a.m., while the Hang Seng China Enterprises Index declined 1 percent. The Shanghai gauge has fallen 4.5 percent from this year’s high on Oct. 9 after authorities failed to give a start date for the link after announcing in April that it would start in six months’ time.

“The delay in the Shanghai-Hong Kong connect will impact the market in the near term as this means more funds won’t be flowing in soon,” said Mao Sheng, an analyst at Huaxi Securities Co. “Moreover, investors are feeling jittery about economic growth in the fourth quarter.”

The CSI 300 Index dropped 1.1 percent, led by financial companies. Hong Kong’s Hang Seng Index lost 0.9 percent, dragged down by Tencent Holdings Ltd. and casino operators.

Market Reversal

The Shanghai Composite rallied 15 percent in the third quarter, wiping out this year’s losses, as the link, also dubbed the Hong Kong-Shanghai Connect, fueled fund inflows on expectations investors from Hong Kong and Shanghai would gain unprecedented access to each other’s shares. Trading volumes in Shanghai were 21 percent below the 30-day average, according to data compiled by Bloomberg.

“Any reversal in the expectation regarding the Connect program can set the market in reverse,” Hao Hong, Bocom International Holdings Co. China equity strategist, wrote in a note today.

Hong Kong Exchanges & Clearing is at the “completion stage” of preparation for the Shanghai-Hong Kong stock link, Li said in a conference call with reporters yesterday, declining to speculate on a timeframe for the start date.

“While the market will always appreciate advance notice, which we will strive to give, I’m not at this point stipulating any particular days,” Li said.

Growth Concerns

Chinese regulators need to address whether foreign investors will pay capital gains taxes on mainland shares before the link can begin, Mark Mobius, who oversees about $40 billion as the executive chairman at Templeton Emerging Markets Group, said in an interview in Hong Kong.

Some traders are speculating pro-democracy protests in Hong Kong’s central business district could be part of the reason for the delay, said Jeffrey Chan, chairman of the Hong Kong Securities Association.

The link is “just around the corner,” Hanfeng Wang, China strategist at China International Capital Corp., wrote in a report today, citing its potential in forecasting a 20 percent rally for A shares next year.

China’s economic growth will stabilize at about 7 percent in 2015 as A-share earnings growth accelerates to 10.6 percent from 8.7 percent in 2014, he said.

Growth will slow to 7.2 percent in the current quarter, down from the previous three months, as domestic demand weakens, Song Guoqing, an academic member of the People’s Bank of China monetary policy advisory committee, said at a forum in Beijing on Oct. 25.

The nation’s economy will probably expand 7.3 percent next year, Song said. That view contrasts with a prediction by Fan Jianping, chief economist at a state research institute, who said he expects 7 percent growth in 2015 unless the central government imposes stronger-than-expected stimulus measures.