China moving to turn off the fund taps? Unlikely. ? Analyst Comments

Singapore S-chips came down big time yesterday on the following two pieces of news:

* One, China is not prepared to go ahead with the HK Through Train Scheme anytime soon, which would have allowed individual Chinese investors to trade HK stocks directly

* Two, Chinese QDII asset managers that are preparing to launch their funds have been told to reduce their exposure to the HK market and resubmit their proposals to Beijing

We don't see this as bad news for Singapore S-chips. The main reason for these "road blocks" is not because Beijing is against overseas investment. After all, the QDII and HKTT schemes were their ideas to begin with. In our view, they probably want more diversification in their maiden efforts to invest excess public funds overseas. Also, to put it bluntly, the HK stock market has gone up a lot in the last few months on foreigner buying in anticipation of China turning on the fund tap and Beijing obviously does not want either its fund managers or its citizens to be buying when foreigners are taking profit.

The upshot, very likely, is that it will be eventually positive for other markets, particularly Southeast Asia, as QDII funds will have to put more weighting on non-HK markets. Singapore S-chips should be a natural beneficiary of their interest eventually. And the HKTT Scheme is a purely HK issue, and should not affect fund flows to our markets.

Hong Kong's Hang Seng Index plunged 5 per cent - the largest one-day fall in percentage terms since Sept 12, 2001, the day after the terrorist attacks in the US. Investors in the Hong Kong market were reacting to Chinese Premier Wen Jiabao's remarks over the weekend, dampening hopes that a plan announced in August to allow mainland Chinese to buy Hong Kong stocks would be approved by Beijing in the near future.