Greater China’s Delayed Dealing Declaration
Chinese and Hong Kong shares sagged as the Trade Connect platform was indefinitely delayed on technical and policy issues as political and financial market development differences between the two locations were openly debated after scant consideration with President Li’s initial announcement. Occupy Central protesters continue to press demands for direct popular elections in the enclave as promised by Beijing in the 1997 UK handover, but they have been careful not to interfere with exchange or investor operations although interruptions have occurred with blocked public passage. They got an audience with the Beijing-backed chief executive and seek specific commitments and timetables for grassroots polls as the Connect project skidded on lingering cross-border disparities on tax, custody and settlement. The daily Yuan 10 billion limit remained intact, but institutional investors considering Shanghai were stuck on fiduciary guidelines which may be difficult to satisfy in view of local divergence from global norms. In reverse the retail players who could access HK must have a minimum Yuan 500,000 account beyond average portfolio worth. Wealthier individuals have already arranged offshore channels and institutions under the RFII scheme have not even used the available quota to date. From a profits standpoint big industrial firms listed in both places have reported an average increase barely keeping pace with 7.5 percent GDP growth. Capex is down and overcapacity grips many sectors with the main bright spot developed economy higher-end exports with modest US and European recovery. Hong Kong sales at home and abroad were sputtering before the street unrest, with the latter up just 1 percent in December. Fake export activity however continued to flourish as a hot money conduit betting on further CNY appreciation after a brief pause in the previous quarter. Taiwan has largely stayed out of the internal spat, but its President proclaimed sympathy with the Occupy movement as stocks were marginally positive on 3.5 percent GDP growth and the central bank on hold although it may be regularly supporting a competitive currency level to the chagrin of foreign finance officials. That effort will accelerate with Japan’s surprise QE expansion with the annual government bond buy rising to Yen 80 trillion at longer maturities and also embracing wider purchase of commercial securities and mutual funds. Bank of Japan head Kuroda overruled opposition to the move as European drift into deflation reinforced the mentality of decades-long experience which has persisted despite fiscal and monetary shock treatment from “Abenomics.” Low public approval ratings and cabinet resignations of female members may have helped prompt the ratcheting with the 2 percent inflation target still elusive.
Rival Korean shares are down as auto and tech production falter exacerbated by strikes and continued executive infighting at chaebol as family and outside owners grapple for control. Along with corporate governance the lack of official accountability in the school student ferry disaster has raised questions there as the North seems to have resumed outreach with informal meetings following Kim’s reappearance after ankle surgery which has yet to hobble nuclear plans.
