Nov 17, 2014

    All eyes on Shanghai-HK stock link-up

    ATTENTION in the stock market this week will likely be on the start of the cross-border exchange trading platform between Shanghai and Hong Kong.

    The Shanghai-Hong Kong Stock Connect, as it is known, will be up and running today, enabling direct trading between the two exchanges.

    Foreign investors can trade 568 Shanghai-listed stocks through the Hong Kong Stock Exchange, when only a limited number of qualified institutions could do so previously.

    Chinese investors can trade in 268 Hong Kong-listed stocks through the Shanghai Stock Exchange for the first time.

    Singapore retail investors who have signed up with their brokers to trade Hong Kong stocks can also benefit from the reciprocity.

    A net amount of up to US$3.8 billion (S$4.9 billion) worth of daily cross-border trades will be allowed for a start.

    With the link, market players have voiced concerns over whether the Singapore Exchange can maintain its attractiveness as an exchange for exposure to the Greater China play.

    "Now that there's an option to get the stocks off the Hong Kong-Shanghai link, it might just lead to reduced flows to Singapore," said CMC Markets analyst Desmond Chua.

    "I do foresee tougher times ahead for the Singapore Exchange to garner more volume."

    Expectations of increased liquidity and fund flows already led to both Hong Kong and Shanghai outperforming Singapore when the launch date of the trading link was announced last Monday.

    That day, Hong Kong's Hang Seng index added 0.8 per cent while the Shanghai Composite Index gained 2.3 per cent.

    Singapore's Straits Times Index (STI) rose 0.4 per cent on the same day.

    For the week, the Hang Seng increased 2.3 per cent, in line with Shanghai's 2.5 per cent hike.

    The STI ended the week up by 0.9 per cent.

    It was a decent performance, when seen in the context of the 0.4 per cent growth for the week for both the S&P 500 and Dow Jones Industrial Average.

    Wall Street managed to string together five consecutive record closing highs in a run that extended from the previous week.

    Lofty valuations in United States markets were supported by the positive earnings of companies there, as a Citi Investment Research note showed that nearly 80 per cent of firms that reported their results have beaten estimates.

    Firms listed here have also been reporting their results, helping to lift trading activity as the earnings season draws to a close.

    Companies have up to 45 days to report their non-full-year, quarterly results, so Friday was the deadline for those ending three months on Sept 30.

    Gaming firm Genting Singapore and palm-oil firm Golden Agri-Resources were among the top volume counters last week, when they were punished for their disappointing results.

    Genting Singapore closed to its lowest level in more than four years to $1.015 on Wednesday, after it reported on Tuesday that net profit plunged 50 per cent to $97 million, though its price recovered to $1.045 on Friday.

    Golden Agri dropped 8.8 per cent over two days to 46.5 cents, its lowest in five years, after it reported on Wednesday its worst quarterly earnings of US$4.4 million in 11 years.

    Lifestyle group Osim International has also endured a tough period. Its share price dropped 12.9 per cent to $1.96, since reporting on Oct 28 a 27.8 per cent drop in third-quarter net profit to $16.4 million.

    Banks, meanwhile, have been rewarded with share-price appreciation since they reported robust earnings.

    DBS Group Holdings and United Overseas Bank (UOB) were behind the STI's rise last week, accounting for much of its gains.

    Since their third-quarter results were announced, DBS shares have gained 7.5 per cent to $19.71, UOB shares have added 3.6 per cent to $23.29 and OCBC shares have climbed 5.7 per cent to $10.24.

    Barring fresh corporate updates on potential deals, the winding down of the earnings season may well leave the market without clear guidance going forward.

    Investors will also need to weigh the minutes of the US Federal Reserve's latest meeting, which will be released on Wednesday, for further clues on potential interest-rate hikes.