Tuesday, October 16, 2007

China eyes stake in Hong Kong stock exchange: report

HONG KONG: China may be accumulating shares in the Hong Kong Exchanges and Clearing (HKEx), which operates the territory's stock exchange, through state-run agencies, a report said on Thursday.

Citing unnamed sources, the Times newspaper in London reported the recent spikes in HKEx's share price were likely to have been driven by the first but still unofficial purchase of HKEx shares by China Investment Corp (CIC).

CIC, which has yet to be officially launched, has been set up by the Chinese government to try and maximise investment returns from the country's foreign exchange reserves.

The Times cited unnamed Hong Kong-based traders as saying that while it was not possible to track precisely what was driving the sharp HKEx stock price movements, there were "unmistakable" signs of buying pressure from Beijing.

It said that some traders were speculating that the mainland government might also be investing in HKEx through another state-controlled vehicle, the 53-billion-US-dollar National Social Security Fund.

A HKEx spokesman would not comment "market speculation".

CIC has denied that it invested in HKEx, the Hong Kong Economic Times reported. Its spokesman said the company had no other investment apart from the 3-billion-US-dollar stake in Blackstone Group of the US.

Media reports have speculated that China's new investment agency could have bought shares of HKEx, triggering a 22 percent surge in HKEx's shares over two trading until this Monday.

HKEx also traded sharply higher on Thursday. By late morning, HKEx shares traded up 6.4 or 2.75 percent at 239.00 Hong Kong dollars (30.6 US), off a high of 246.00.

Citing unnamed sources close to the matter, state media China Securities Journal had reported said CIC will have a registered capital of 200 billion US dollars. It said CIC will begin formal operations this Saturday.

Hopes of further fund inflows into the local bourse from China following reports the mainland's new investment company will start operations on Saturday lent support in the stock market.

"These news are providing a further excuse for investors to buy the share," said DBS Vickers director Peter Lai.

China's strong exports and increased investments have boosted the country's foreign exchange reserves, which totalled almost 1.4 trillion US dollars as of July.

By setting up a company which could invest part of its forex reserves, China could divert some of its funds outside the mainland while easing pressure on its currency, the yuan.

- AFP/so

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