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Friday, Feb 26, 2021

Mainland traders ride on high risk appetite to snap up Hong Kong stocks at unprecedented pace

Mainland traders ride on high risk appetite to snap up Hong Kong stocks at unprecedented pace

Chinese investors have spent US$35.6 billion buying Hong Kong shares this year through the Stock Connect programme, the most in the same period since 2017. Strong southbound inflows add to speculation about state buying to defend Hong Kong’s position as a financial centre

Mainland traders are unfazed by the rout in Hong Kong stocks, the worst performing market in Asia last month.

While foreign and local investors have been fleeing Asia’s third-largest market amid fears of rising unrest and an escalation in US-China tensions, Chinese traders have been buying shares at an unprecedented pace via a cross-border investment scheme.

The HK$276.1 billion (US$35.6 billion) pumped into shares listed on Hong Kong stock exchange through the Stock Connect programme year to date is also the most for the same period since 2017, according to Bloomberg data. Most of the buying was focused on big Chinese companies trading in the former British colony, such as Industrial and Commercial Bank of China and China Construction Bank.

The buying pattern has fuelled speculation that Beijing may have been intervening to prop up the US$4.9 trillion market to defend the city’s status as a financial hub after China’s move to impose a security law triggered the biggest sell-off in five years last month. Any mainland individual or institution with 500,000 yuan (US$70,120) in their trading accounts is eligible to access Hong Kong stocks through the Stock Connect.

When the Hang Seng Index tumbled 5.6 per cent on May 22, mainland investors spent HK$4.4 billion buying Hong Kong stocks – the most purchase in two months. Inflows have been so strong that net selling was recorded on only six days this year.

“It’s possible that state buying may account for the strong flows from the mainland,” said Wang Zheng, chief investment officer at Jingxi Investment Management in Shanghai. “But the battered valuation of Hong Kong may be another reason for attracting mainland investors.” He added that the market does look attractive in the long run.

The Hang Seng Index is the cheapest among the world’s major benchmarks, trading at 11.2 estimated earnings, Bloomberg data showed. That compared with 24 times for the S&P 500 index, 18 times for Europe’s Euro Stoxx 50 index and 13 times for China’s CSI 300 Index.

The benchmark surged 3.4 per cent on Monday, rebounding from a 6.8 per cent slump last month, as the latest US sanction against China fell within market expectations.

The Trump administration announced on Friday that it plans to scrap the preferential treatment given to Hong Kong, which it said no longer maintained a high degree of autonomy from the mainland.

The market had anticipated tougher measures, ranging from asset freeze to even a restart of the trade war.

“Hong Kong stocks will stand out in the long run, as the overseas [coronavirus] epidemic is improving and domestic factory reopenings get well under way,” said Zhang Yusheng, an analyst at Changjiang Securities. “The low valuation will also provide room for repair.”


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