By Donny Kwok
HONG KONG (Reuters) - The stalled link-up between the Hong Kong and Shanghai bourses hit financial stocks on both exchanges on Monday, left investors in the dark about the scheme's future and raised more questions about Beijing's patchy record on delivering reform.
The Stock Connect had been expected to go live on Monday, but banks and asset managers complained last week that the scheme rules were unclear, and on Sunday Charles Li, chief executive of Hong Kong Exchanges and Clearing Ltd, said it had not received regulatory approval.
That will have come as a blow to banks and brokers that have been hiring traders for what BNP Paribas has estimated could generate more than $3 billion a day in extra trading by giving outside investors direct access to mainland Chinese stocks.
Li said he was "not in the loop" about when it might happen and could not say which agency on the mainland was ultimately responsible for giving the green light.
MSCI, which compiles global stock indexes, said a significant delay in the scheme, which had been hailed as a milestone in the opening up of China's capital markets, could stop it adding China stocks to its emerging markets index. That in turn would limit the range of investors willing or able to invest in Chinese stocks.
Jack Wang, deputy chief marketing officer at China CSOP Asset Management based in Hong Kong, told Reuters that investors had invested a lot of money preparing for the scheme and needed greater clarity from the Chinese government on timing of the scheme. The Hong Kong and Chinese governments had said in April they were looking for a launch within six months.
"From a client perspective, they definitely want to see a clearer picture ... You can keep people guessing for half a year, but you can't keep people guessing for five years."
The delay is the latest setback in China's reform drive and casts doubt on Beijing's commitment to opening up its markets and its willingness to relinquish control, especially as its economic growth slows.
SHANGHAI SETBACKS
The much-hyped Shanghai free trade zone, billed as Beijing's boldest reform in decades, has seen slow progress and a lack of clarity on policy incentives that has frustrated many investors more than a year after its official launch.
Companies have been reluctant to set up shop in the zone, citing uncertainty over when the government will get around to implementing some of the aggressive reforms promised, undermining the city's goal of becoming a global financial centre by 2020.
"From Shanghai's perspective we've had two setbacks, the Shanghai Free Trade Zone and now the stock connect programme," said Brian Ingram, Chief Investment Officer at Russell Ping An Investment.
Likewise, a long-awaited programme that would allow global fund managers to distribute Hong Kong-domiciled funds in mainland China, unveiled early last year, appears to have been temporarily shelved.
"They are now trying to get there, but there is still a long way to go in terms of how to communicate to the rest of the world," said Wang.
Shares in HKEx, the world's largest listed stock market operator, closed down 4.7 percent on Monday, and Citic Securities and Haitong Securities were among financial stocks down sharply on both the Hong Kong and Shanghai bourses.
The drop in HKEx helped pull down the benchmark Hang Seng Index about 0.7 percent, while the Shanghai Composite lost 0.5 percent.
Some market watchers said the launch date might have been postponed due to China's dismay over month-long pro-democracy protests in Hong Kong, which have paralysed parts of the financial centre.
(Additional reporting by Saikat Chatterjee and Michelle Price in Hong Kong and Pete Sweeney in Shanghai; Editing by Anne Marie Roantree, Kim Coghill and Will Waterman)
