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Monday, November 21, 2016, 17:50

Trump win adds to Shenzhen-Hong Kong link delay

By Duan Ting

HONG KONG - Donald Trump’s surprise victory in the United States presidential election, which has caused uncertainty in the global financial market and triggered a stronger US dollar and weakening yuan, has likely contributed to the postponement of the Shenzhen-Hong Kong Stock Connect’s launch, according to an industry expert.

The greenback has climbed to its highest level in 13 years and the central parity rate of Chinese yuan against the US dollar reached an intraday low of 6.9140 on Monday, according to the State Administration of Foreign Exchange.

Steven Sun Yu, managing director and head of China equity research and strategy at HSBC, said the key reasons for the delay of the country’s second cross-border trading link included the triumph of President-elect Trump on November 8.

Sun said the election result triggered an enormous amount of financial market volatility and renewed the weakness of the yuan since early November. But he said a positive was that many short-term concerns have already been priced in, and he believes there is a high probability that the trading link will be officially launched in the coming weeks.

The long-awaited stock trading link between Shenzhen and Hong Kong, which was approved in August, will further open up China’s capital markets to foreign investors.

HSBC forecasted that the yuan will hit 6.9 against the greenback by year-end, reaching 7.2 next year -- a drop of four to five percent.

Sun predicted that after the stock connect is launched, recent strong southbound inflows will continue, given the expectations of renminbi depreciation and the lack of onshore assets. This is especially after the cooling measures on the property sector, adding to the global hunt for yield in a low interest rate environment. He said the pressure of capital outflow through the trading link is far less likely.

Sun said northbound investors may prefer new economy sectors with potential growth, earnings visibility and scarcity value. These include in information technology, consumer staples and discretionary, healthcare, high-end manufacturing, green industry and new materials, and culture industry.

He said there may be a rotation from large-cap stocks to mid-cap and small-cap stocks in the Hong Kong market after the launch.

HSBC predicted the Hang Seng Index will hit 25,000 next year and Hang Seng China Enterprises Index target will be 11,000.

Sun also pointed out that the Shenzhen-Hong Kong Stock Connect is a milestone in the liberalization of China’s capital account and will serve as an important catalyst for the long-awaited inclusion of A-shares into MSCI Emerging Markets Index.

The benchmark index rose 13.57 points or 0.06 percent to 22,357.78 and Hang Seng China Enterprises Index jumped to close at 9,444.71 points on Monday.

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