China’s equity disconnect

shutterstock_307708781

On Tuesday, China’s state council announced to great fanfare a plan that would make it easier for investors outside China to buy and sell stocks traded on the mainland’s second-largest equity board, the Shenzhen Stock Exchange.

In Hong Kong, Charles Li, CEO of Hong Kong Exchange and Clearing Ltd., said the program, dubbed the Shenzhen-Hong Kong Stock Connect, could be up and running before Christmas. The Shenzhen link will be modeled on the Hong Kong-Shanghai Connect, a parallel program launched November 2014 to increase trade between Hong Kong and the Shanghai Stock Exchange.

This ought to be big news. China’s $11 trillion economy is the world’s second-largest, and home to lots of capital and some of the world’s biggest companies. China claims the¬†world’s largest population of billionaires (568 in China compared to 535 in the United States). Chinese companies account for more than 100 of the Fortune Global 500. The market capitalization of the mainland’s two exchanges, Shanghai and Shenzhen, is roughly equal to that of Tokyo and Hong Kong respectively.

And yet the grand vision of “connecting” China’s capital and companies with the rest of the world brought no joy to markets this week. Stock prices in Shanghai and Shenzhen ¬†barely budged today. Among global investors, the responses have been slightly less charitable than reviews of Suicide Squad on Rotten Tomatoes.

What’s the problem? Continue reading “China’s equity disconnect”