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Asian shares weaker as HK-Shanghai trading link delayed

Published 10/26/2014, 10:47 PM
Updated 10/26/2014, 10:50 PM
Asian shares weaker

Asian shares weaker

Investing.com - Asian shares fell on Monday as a trading program letting more foreign investment into mainland China was delayed.

Hong Kong's Hang Seng Index led Asia lower with a loss of 1.2% in early trading, while the Shanghai Composite Index was down 0.7%.

The Hong Kong Exchanges & Clearing Ltd., the biggest bourse operator by market value, slumped 3.4%, after the stock exchange said Sunday that a trading connection with Shanghai still hadn't received regulatory approval. Investors previously expected the program to launch before the end of October.

No new launch date has been set, although the exchange said the technology and infrastructure for the program is in place. Shares of Hong Kong Exchanges & Clearing gained 33% since the program was first announced in mid-April. In the same period, the Hang Seng lost 1.3% while the Shanghai Composite Index gained 8.1% as of last Friday's close.

Analysts attribute the split in performance to investors taking advantage of price arbitrage opportunities between the two markets. Shares of firms listed on both exchanges have on average traded more cheaply on the mainland in recent years.

Investors in Hong Kong were also reacting to the latest in the city's pro-democracy protests, which appears to be a possible reason why the trading program has been delayed. Over the weekend, leaders of the movement canceled a vote that was supposed to galvanize further support for their efforts, a sign of the challenges they face uniting disparate groups.

Separately, roughly one in five of the euro zone's top lenders failed landmark health checks at the end of last year but most have since repaired their finances, the European Central Bank said on Sunday.

Painting a brighter picture than had been expected, the ECB found the biggest problems in Italy, Cyprus and Greece but concluded that banks' capital holes had since chiefly been plugged, leaving only a modest 10 billion euros ($12.7 billion) to be raised.

Italy faces the biggest challenge with nine of its banks falling short and two still needing to raise funds.

The test, designed to mark a clean start before the ECB takes on supervision of the banks next month, said Banca Monte Dei Paschi Spa (OTC:BMDPY) had the largest capital hole to fill at 2.1 billion euros.

Last week, U.S. stocks rose on Friday applauding a fresh batch of positive third-quarter earnings, which gave investors room to shrug off soft home sales data and a new case of Ebola diagnosed in the United States.

The Dow 30 rose 0.76%, the S&P 500 index rose 0.71%, while the NASDAQ Composite index rose 0.69%.

The Census Bureau reported on Friday that U.S. new home sales rose 0.2% in September to 467,000 units, missing expectations for an increase to 470,000 units.

The August figure was downwardly revised to a 15.3% climb to 466,000 units from a previously estimated 18.0% jump to 504,000 units.

Still, a longer-range view of economic indicators still points to a sustained U.S. recovery, including in the housing sector.

Elsewhere, a doctor who recently returned from Guinea tested positive for Ebola in New York City, though expectations for authorities to contain the virus gave investors room to focus on earnings and stocks room to rise.

In the week ahead investors will be looking ahead to the outcome of Wednesday’s Federal Reserve meeting amid expectations that it will wind up its asset purchase program.

Investors will be scrutinizing the Fed statement for further indications on how soon interest rates could start to rise.

Friday’s report on euro zone consumer inflation will also be in focus, amid growing expectations that the European Central Bank will have to take additional easing steps to boost the flagging euro area economy.

On Monday, the Ifo Institute is to release its report on German business climate. The euro zone is to release data on M3 money supply and private loans.

The U.K. is to release private sector data on retail sales.

The U.S. is to publish an industry report on pending home sales.

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