Along with a declaration of democracy and all the other laughable promises coming out of China’s five-yearly Congress, we seem to have a new type of state intervention in the capital markets – communists as financial arbitrageurs.
On Thursday, Hong Kong’s Hang Seng careered through the 30,000 level for the first time – prices being powered by intriguing whispers from Beijing.
In short, the idea is being floated that China could simply declare “A” shares – listed in Shanghai – to be fungible with “H” shares – listed in Hong Kong.
While the Hang Seng retreated from its highs, closing at 29.465, so-called “China plays” surged five per cent at one stage in Hong Kong, while on the mainland the benchmark Shanghai Composite index fell 3.5% to 5,825.
While theoretically carrying the same rights and notional value, shares in Chinese companies listed in Shanghai currently trade at an average premium of 47 per cent to the same Chinese companies traded in Hong Kong. This is partly explained by the fact that there is no way of shorting stocks listed in Shanghai – and partly to do with fact that Chinese retail investors have parted company with reality.
After the apparent failure of all other attempts to take the steam out of China’s overcooked stock market, could this effective arbitrage-by-state-dictat actually do the job?
This being China, we dare not say.