Cash Is King !

After the US regulator surprised market with the rate cut, Chinese regulator gave a better surprise on Monday by announcing that mainland individuals can buy Hong Kong shares under a new scheme to be implemented in Tianjin’s Binhai New Area, now considered the country’s third special economic zone after Pudong and Shenzhen.

The State Administration for Foreign Exchange (SFE) – the official regulator of capital inflows and outflows – said those investing overseas must open an account with the Bank of China’s Tianjin branch and transact through the bank’s brokerage in Hong Kong, BOCI. This means only Hong Kong stocks are available for investment at the moment.

The liberalization move could possibly help to lessen upward pressures on the Rmb, narrow the widening gap between A and H shares and provide some stability to Hong Kong’s volatile market as international funds pull money out of Hong Kong to cover fund redemptions lately.

The announcement by SFE said investors would not be subject to the US$50,000 cap on foreign exchange outflows for individuals. Assuming that 1% of the personal savings of about US$2.2trillion flow to Hong Kong stock market in the next 12 months, we are looking at an eye-popping US$20b.

The irony of the back to back announcements…….US government lowering rate to lessen the burden of people who are heavily in debt while Chinese government "had" to open the door for fund to flow out since they have too much money!!