RMB liquidity to increase with Hu's visit to Hong Kong

Speculations that mainlanders will soon be allowed to open RMB accounts in Hong Kong also rise with Hu Jintao's arrival.

Hu Jin Tao is expected to announce policy boosters strengthening the economic ties between Hong Kong and the Mainland on his upcoming trip.

However, analysts from HSBC have warned that Hu's bag of "policy goodies" will not be game-changing initiatives that would spark stock reratings.

Here's more from HSBC:

Chinese president Hu Jintao is expected to follow tradition and announce policy boosters for businesses on his visit to Hong Kong.

Hong Kong stocks have been moving up in expectation of the policy “goodies”. But the joy will be short-lived if the measures turn out to be incremental sweeteners rather than a game changer that sparks reratings.

Sweeteners rather than a game changer

President Hu’s visit on 29 June 2012 marks the 15th anniversary of the handover of sovereignty. Incremental measures to increase economic ties between Hong Kong and the mainland and provide businesses with a boost are expected, but not the game-changing initiatives that would spark stock reratings.

Still an RMB story

Hu’s bag of policy goodies is likely to include further moves to expand RMB services and increase RMB liquidity in Hong Kong. Measures could include allowing “third parties” to use Hong Kong for trade and investment settlement and permitting mainlanders to open RMB accounts in Hong Kong.

The shadow of protests

Possibly unnerving investors will be the protests that are almost certain to overshadow President Hu’s visit. At this point, developments that should cause investment concern are unlikely. The trip comes amid perceived interference by Beijing in the Chief Executive election, the controversial death of Tiananmen Square activist Li Wangyang, and the annual protest rally on 1 July. Half a million Hong Kong people took to the streets in 2003 to challenge the passage of the public security bill.