Stocks link with mainland takes Hong Kong market to three-year high

Funds flow into Hong Kong, driven by stocks link-up with mainland and optimistic outlook

PUBLISHED : Friday, 25 July, 2014, 2:10am
UPDATED : Friday, 25 July, 2014, 12:59pm

Hong Kong stocks rallied to finish at a three-year peak yesterday and are on course to test record highs.

The market was driven by a strong flow of funds into the city ahead of the Hong Kong-mainland stock connect scheme in October and optimism about economic conditions on the mainland.

The Hang Seng Index closed up 0.7 per cent at 24,141.50 points, its highest close since April 2011. The China Enterprises Index of the leading offshore Chinese listings in Hong Kong was up 1.1 per cent to close at its loftiest level since December 2013.

"Liquidity will continue pouring in and recovering China data is accelerating fund managers' pace of buying in Hong Kong equities," said Linus Yip, chief strategist at First Shanghai Securities, who expected the index to reach at least 25,000.

"Fund managers are busy pre-positioning in the Hong Kong market ahead of the stock connect scheme. They favour undervalued Chinese blue chips such as property developers and banks," he said.

Under the stock connect scheme, Hong Kong investors will be able to trade up to 300 billion yuan of mainland A-shares, subject to a maximum of 13 billion yuan a day.

Chinese stocks led the gains after the country's flash manufacturing index showed an upbeat reading of economic conditions that bolstered sentiment in financial and property stocks. The HSBC Flash China Manufacturing PMI yesterday came in at 52.0 in July, an 18-month high, bolstering the central government's chances of meeting its economic growth target.

A reading above 50 signifies expansion.

Last week Beijing said second-quarter gross domestic product increased 7.5 per cent.

Total market capitalisation of the city's two listing venues - the main board and junior growth enterprises board - jumped to more than HK$25 trillion for the first time.

Bank of America-Merrill Lynch China economist Ting Lu said: "For financial markets, worries about leverage, shadow banking and the property sector could emerge again in the second half. However, with the volatility in the first half, markets are more likely to be immune to those calls that predict an imminent economic and financial crisis in China."

Turnover hit the highest since early April at HK$86 billion. The Hang Seng Index has been climbing for three straight sessions, posting total gains of 2.2 per cent.

Mainland property stocks gained on hopes more cities would cut restrictions that have cooled the housing sector, forcing many companies to reduce prices to spur sales. Sunac China Holdings led the sector by adding 5.3 per cent to finish at HK$5.75.