HKEX's price skyrocketed!

The Hang Seng index closed up 17.09 points or 0.1 percent at 23,999.7, off an earlier low of 23,578.11. The index rebounded in the afternoon session, taking it to the day's high of 24,123.66. The index's rebound was helped mainly by shares of Hong Kong Exchanges and Clearing (HKEx), which gained HKD 32.10 or 20.3 % to 190.10 dollars after the government raised its stake in the exchange operator to 5.88 percent on Friday. The stock hit a new intraday high of 197 dollars.

The Hong Kong government's increased stake in Hong Kong Exchanges and Clearing Ltd (HKEx), operator of one of the world's largest stock markets, highlights its intention to establish closer links with mainland bourses and promote cross-border trading between stock markets, analysts said Monday.

The government's decision to become the company's largest shareholder with a 5.88 percent stake also demonstrates its confidence in HKEx long-term prospects and it will probably raise it even further, they said. "The reason for raising the stake is unclear at this point, but the news was well received by the market which stands to benefit from any positive policies resulting in a likely alliance between the HKEx and Shanghai (in the future)," said Eugene Law, research head at Celestial Asia Securities.

Local media have interpreted the government's move as a first step towards merging the local bourse with mainland exchanges by swapping shares with the Chinese government. The Hong Kong government has not commented on the speculation.

"The main reason you are acquiring a stake is if it's a very good buy. If (the market's) turnover continues to grow the way that it has over the last few months the exchange will be worth more than the price that the government paid," said Tony Espina, chairman of Hong Kong Stockbrokers Association.

In August, the exchange operator reported a 110 pct rise in first-half net profit to 2.33 bln Hong Kong dollars due to a sharp increase in activity in the local stock and derivatives markets. The Hong Kong stock market benefits from the perception that its shares act as a proxy for China's economic growth. The Chinese economy has been expanding at a record pace of more than 10 percent a year. Because foreign investors have limited access to yuan-denominated shares, Hong Kong shares provide an alternative opportunity to get exposure to the mainland.

The announcement was followed by reports that Hong Kong is seeking permission from China for the city's investors to trade yuan-denominated A shares. ""Hong Kong investors might eventually be able to trade the A-shares. This could happen as the Hong Kong and mainland markets are getting more interactive with each other,"" the South China Morning Post said Monday. The paper was citing Secretary for Financial Services and the Treasury Bureau Chan Ka-keung.

On Aug 20 China said it will allow its citizens to trade Hong Kong shares. But the scheme has yet to be implemented. At present, investors in Hong Kong and the mainland can invest in each others' markets only through government-approved funds