Wen cautions about HK investment plan

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HONG KONG, (Thomson Financial): Chinese Premier Wen Jiabao urged caution on the eagerly-awaited plan allowing mainlanders to invest in Hong Kong stocks, and set conditions for the implementation of the scheme, the South China Morning Post reported Sunday.
The as-yet-unfulfilled promise of the trial programme has sparked a bull run on the Hong Kong market since the end of August on the expectation that billions of dollars could flood into the market.
But Wen said four conditions must be met before the scheme is approved, signalling a further delay of the plan as the government finalises the rules for it, the Morning Post said.
Wen said Beijing should pass a law to regulate outward mainland fund flows to minimise the shock to domestic stock markets, and look into how this might negatively impact the Hong Kong bourse.
Work should be done to raise Chinese individual investors' understanding of the risks of investing in Hong Kong stocks, and Beijing should seek the opinions of financial regulators before the plan is implemented, he said.
"We should make scientific judgement and analysis on what impact the massive funds flooding into Hong Kong's financial market would have," Wen said in his first remarks on the issue, during a visit to Uzbekistan.
Wen also suggested a gradual integration of the Hong Kong, Shenzhen and Shanghai markets, the report said.
The State Administration of Foreign Exchange said on Aug 20 that it will allow some mainland individuals to buy Hong Kong-traded stocks.
Although it did not specify an investment quota or say when the plan could start, the announcement triggered a rise of more than 40 per cent on the Hong Kong stock exchange.
Analysts fear the move could recreate in Hong Kong the volatility of the Chinese markets, which is partly caused by frenetic speculation by individual Chinese investors betting on short-term gains.
Wen said his government has been working to prevent price fluctuations and the formation of asset bubbles on the mainland. Chinese share prices have more than doubled in the past year.