The historic trading link between the stock exchanges Shanghai and Hong Kong — known as the Stock Connect or the Through Train — launched on Monday to much fanfare. In sadly predictable fashion, critics wasted no time running it down.
Complaints included the small size of the quotas, the complexity involved in buying and selling shares — especially for retail investors — and the long term uncertainly over the treatment of capital gains tax.
Indeed, given an operational complexity that could curl even the toes of the most seasoned banker, and the Chinese regulator’s decision to put off a crucial decision on capital gains taxes until the 11th hour, it’s only natural that investors and bankers would have been nervy.
But it would be difficult to expect any better from such a massive undertaking. A task of this magnitude has barely been attempted before. The linking up of the Malaysian, Singapore and Thai exchanges under the Asean Exchanges Programme is the only project that comes close, but the Stock Connect is on an entirely different scale. With a combined value of $5.6tr, Shanghai and Hong Kong form the world’s third-largest market by value, behind only the Nasdaq and NYSE.
Despite that, the Through Train's first day of trading went off without any major hitch — no mean feat considering the number of different parties involved.
China can hardly be blamed for being cautious. Like the owner of a prestigious auction house about to launch the sale of a long-awaited treasure chest of items, it is well aware of the frenzied interest in its assets. Should potential buyers be allowed to camp outside overnight and rush in unhindered as soon as the doors open? Or should they be divided up based on their level of interest and ability to pay, and lots be assigned so everyone has a fair chance of participating?
Sure enough, on day one, northbound trades comfortably hit their quota of Rmb13bn ($2.12bn) before 2pm. And as expected, the southbound track struggled to keep up.
This was largely because of the many structural issues that would prevent an outpouring of retail interest into Hong Kong from the Mainland. Not to mention that Hong Kong’s stock market is also already open to international investors, unlike China’s.
Equally unsurprisingly, the initial euphoria was lacking on day two. By 1pm on Tuesday, northbound turnover had neared only 26% of the daily limit, leaving a hefty Rmb9.6bn on the table.
Some would call these volumes paltry. But volume alone should not determine whether the Stock Connect is a success. China has set itself a long term goal of opening up its capital market and Stock Connect is just one programme among many. And as China has shown time and time again, it prefers a gradual approach.
It can't be denied that there have been glitches along the way. A smoother process might have been preferable, but sometimes you just have to go with what you can get.
In any case, those who dwell on the problems are missing the point. The Train has left the station. You can either get on, or get left behind.