PBOC Inadvertently Boosts Stocks With Dated Zhou Comments

  • 2015 target for Shenzhen-Hong Kong link surprises investors
  • HKEx shares pare gain after PBOC issues clarification

China’s central bank unintentionally sparked a surge in the nation’s stock market by publishing five-month-old comments from governor Zhou Xiaochuan that said a link between exchanges in Shenzhen and Hong Kong would start in 2015.

Zhou’s comments appeared in a lengthy article dated Tuesday that focused on the need for Communist Party discipline. It was published on the PBOC’s website without any indication that the statements were old. The central bank later said via text message that the comments were taken from a speech on May 27, while Hong Kong’s bourse said the link is still subject to regulatory approval. The clarifications came after a 3.3 percent surge in the Shenzhen Composite Index and a 3.1 percent gain in Hong Kong’s Hang Seng Index in early trading.

The PBOC article moved markets because it came as a surprise to many investors who had anticipated the link would be delayed after a $5 trillion rout in Chinese shares. Ten of the 13 respondents in a Bloomberg survey in September predicted the Shenzhen connect would start next year as authorities focused their efforts on stabilizing mainland equity prices.

Few Details

“It seems there is no unified channel to talk about this, and every time an individual authority talks about it the market has the chance to drum up or down,” said Castor Pang, head of research at Core-Pacific Yamaichi Hong Kong.

Policy makers have given few details about the timing of the program since China’s stock-market selloff started in June. The link may begin in the second half of the year, Hong Kong Chief Executive Leung Chun-ying said May 28. The city’s exchange operator had also outlined a similar timeframe, while a person familiar with the matter said in May that China’s State Council had signed off on the plan.

Officials have been reviewing plans to expand the exchange link to Shenzhen after starting the Stock Connect program between Shanghai and Hong Kong in November 2014. MSCI Inc. has said that giving foreigners more access to China’s second-largest equity market, home to many of its small technology companies, is key to getting the nation’s stocks included in global benchmark indexes.

Expanding the exchange connect would be part of China’s effort to link its financial markets with the rest of the world and boosting global usage of the yuan. The Communist Party’s next five-year plan calls for increasing the yuan’s convertibility by 2020 as authorities push for inclusion in the International Monetary Fund’s basket of reserve currencies.

New Channel

“As we accelerate the nation’s opening of trade and investments, we need to speed up the opening of the financial sector," Zhou wrote in the article. “This year the Shenzhen-Hong Kong connect will be launched; this will show a new channel between China’s capital markets and the world has opened."

The Shenzhen index held on to its gains after the PBOC clarification, rising 5.1 percent at the close. Along with speculation over the timing of the link, traders pegged the gains to optimism over China’s five-year plan to bolster the economy and use of the currency. Shares of Hong Kong Exchanges & Clearing Ltd., which had surged as much as 9.1 percent, ended the day with a 4.7 percent gain.

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