So the “through train” really is through. When China's State Administration of Foreign Exchange announced plans, known locally as “the through train”, to let individual investors dabble in overseas equities in August 2007 – starting, naturally, with Hong Kong's – the Hang Seng soared 55 per cent in three months. When the project was formally scrapped this week, Chinese equities barely moved. Investors had long assumed this train had stopped.
A tentative relaxation of capital controls, allowing domestic savers to play around with Hong Kong dollar-denominated assets, might have seemed a good idea two and a half years ago, when inflation was nearing a 10-year high, and growth was firing. In the interim, deflation took a brief hold, exports fell and China turned inward again. Mainland exchanges – under the auspices of the China Securities Regulatory Commission – began to be an attractive destination for capital.
Volumes on Shanghai increased by almost two-fifths between 2007 and 2009 and last year it became Asia's biggest stock market by trading value. Over that period, more rational pricing began to prevail. Since October last year, the premium of A-shares in Shanghai to their H-share equivalents in Hong Kong has held steady at about 16 per cent, down from an average 41 per cent between 2007 and 2009. The advent of Shenzhen's ChiNext, in November, offered exposure to growth stocks just graduating from venture capital. By then, the CSRC was upping allocations for overseas equities for qualified domestic institutional investors. The message to retail was obvious: leave it to the professionals.