A 17 November start date has been named for the Shanghai-Hong Kong Stock Connect. It follows a month of silence, in which the regulators in China and Hong Kong made no utterances on the issue, leaving traders and investors in a state of limbo. However, with the preparatory work already finished, the sell-side is ready for the launch date.
“November 17th is fine for the brokers, remember, we were all ready for the 27th October,” said Andy Maynard, global head of trading at CLSA.
The Securities and Futures Commission (SFC) and the China Securities Regulatory Commission (CSRC) said earlier on Monday that all necessary regulatory approvals and relevant regulatory operational arrangements required for its commencement had been satisfied.
However, whilst the political issues for the delay have been resolved – and it seems a safe bet that the Occupy Central movement may have been in large part responsible for the pause, the outstanding list of unresolved operational issues remain a conundrum. These include taxation and beneficial ownership.
“None of the issues are solved as yet, especially regarding taxation,” added Maynard. “However, the authorities keep saying it will be rectified and resolved.”
He is referring to the unresolved dilemma that China has to address concerning capital gains tax. A decision has to be made whether Hong Kong investors who sell shares that they have previously purchased via the Stock Connect will be liable to pay capital gains tax. There is a liability for capital gains tax in China in such circumstances, and waiving it for the Stock Connect will be a tall order, even though it would be difficult, although not impossible, to collect.
Mark Austen, CEO of the Asia Securities Industry & Financial Markets Association, agreed with the comments of Andy Maynard and added. “The question is; can everyone get their clients ready to start trading on Monday? Even if they don’t, interest will build over the following weeks.”