I am now more convinced than ever that this train will never leave the station.
The Chinese state media organ Xinhau today quotes Liu Mingkang, chairman of the China Banking Regulatory Commission, as saying Beijing needs more time to study the scheme.
If you remember, when the through-train was first unveiled last August I told you it would be 18 months to two years before it came to pass.
At the time, other U.S. newsletter writers pilloried me. They claimed I was trying to throw cold water on their marketing, which promised that U.S. investors could ride to riches on the backs of Chinese trading on the Hong Kong Stock Exchange.
What was weird about the criticism was that I was, and still am, the only U.S.-based Asian investment authority with a published HKEx portfolio.
Still, these new-to-China rookies and charlatans sent their readers out into the wilds of an exchange about which they knew next to nothing.
In the end, the irony is just who it was that tossed the wet blanket on a fire that saw billions of dollars flow into Hong Kong in August and September on speculation alone.
That fireman was none other than Chinese Premier Wen Jiabao (溫家寶). In early November, he temporarily derailed the through train over his concerns that Chinese investors didn’t understand the risks associated with investing.
Maybe he needs a newsletter.
Wen also said – and this is the biggie – that China needs a law to regulate outward funds to minimize the impact on the Shanghai and Shenzhen stock markets, and to look at the negative impact such a move could have on Hong Kong's index.
That latter concern is due to the fact that individual Chinese investors trade like day-traders on steroids… in and out of stocks at an alarming rate. And, churn does not create stability.
On top of that, once the through train was announced the HKEx jumped 30% on foreign speculation.
So, my guess is Wen rightly surmised that adding mainland investors to this mix would turn the HKEx into the Wild West. Not an image China wants to promote.
My instinct about a permanent derailment is also fueled by the new deal China struck with Taiwanese banks. It's one that allows them to invest directly in Hong Kong, as I reported here in late February.
That move adds professional and risk-adverse liquidity to the HKEx.
So, the good news is for now, and hopefully forever, Hong Kong will remain home to the pros.
Maybe we could reroute the through train into the U.S. pink sheets and Over The Counter Bulletin Board.
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