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Updated Tuesday, September 25, 2007 0:00 am TWN, Bloomberg

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Credit Suisse cuts PRC stock to underweight

KUALA LUMPUR -- Chinese stocks included in MSCI indices were cut to “underweight” at Credit Suisse Group after the country’s banking regulator said it will limit the amount citizens can invest in Hong Kong shares.

“This is a fundamental deviation from the original scheme,” Vincent Chan, an analyst at Credit Suisse, wrote in a report sent to investors Monday. “With quotas imposed, liquidity inflow into the Hong Kong market will probably be smaller and slower.”

The report didn’t say what the previous recommendation was and Chan wasn’t immediately available to comment. MSCI’s China index mostly measures shares of Chinese companies listed in the southern city.

Hong Kong’s Hang Seng Index has jumped 20 percent since a pilot program allowing some Chinese to invest in the city’s stock market was announced on Aug. 20. Individuals residing on the mainland will sink as much as US$20 billion into Hong Kong equities in the next six months, William Liu, CLSA Ltd.’s head of China research said last week.

The program has been delayed after objections from China’s securities and banking watchdogs.

The government will impose a quota on total share purchases through the program, Xia Lingwu, a Beijing based spokesman at the China Banking Regulatory Commission said on Sept. 21.

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