More ‘Ghost Train’ than ‘Through Train’ as Shanghai stock link flows plunge

Charles Li, chief executive officer of Hong Kong Exchanges and Clearing Ltd.

The flood of buy orders for Shanghai shares through the Hong Kong exchange link has slowed to a trickle two days after the program’s debut.
Net purchases of mainland equities by global investors totaled 2.6 billion yuan (USD425 million) yesterday, down from about 4.8 billion yuan on Tuesday and the maximum 13 billion yuan on Nov. 17. Hong Kong stock buying slowed 68 percent from Tuesday to 253 million yuan. The Shanghai Composite Index slipped 0.2 percent and shares of Hong Kong Exchanges & Clearing Ltd. posted the biggest three-day drop since 2011.
The tumble in demand Tuesday spurred CLSA Ltd. to call the program a “Ghost Train,” a reference to the so-called Through Train plan to let mainland investors buy Hong Kong shares in 2007. That proposal sent the Hang Seng Index surging before being abandoned. While CLSA analysts said it’s too early to judge the sustainable level of trading through the link, they said usage so far has been disappointing and profit projections for Hong Kong’s bourse may be cut.
“While the bulls will point to rumors that many investors are waiting on the sidelines for now, the bears will point to the already huge visible fall in demand,” Marcus Liu, a Hong Kong-based analyst at CLSA, wrote in a report. “Our expectations on Stock Connect are at the bottom end of consensus.”
Hao Hong, a managing director for research at Bocom International Holdings Co., called the debut an “anticlimax,” while Yuliang Chang, the chief China and Hong Kong equities strategist at Deutsche Bank AG, said initial flows are disappointing on both sides of the link.
One reason for the weak demand is that share prices had already surged in anticipation of the link, said Wu Kan, a money manager at Shanghai-based Dragon Life Insurance Co., which oversees about $3.3 billion.
The Shanghai Composite reached a three-year high on Nov. 12, while the Hang Seng index of Hong Kong shares traded at the highest in almost two months on Nov. 14.
“News of the stock connect has already been fully digested and priced in,” Wu said. “Investors won’t enter the markets to buy shares at such levels now.” Kana Nishizawa , Bloomberg