Hong Kong, China stocks stay on positive roll for second day amid optimism about foreign inflows
- Traders gauge possibility of increased foreign buying on availability of hedging tools and regulatory comment on ownership cap
Hong Kong stocks closed on a stronger note on Tuesday, as the benchmark Hang Seng Index gained more than 400 points amid improved sentiment towards mainland Chinese equities.
Traders cited optimism that mainland regulators will allow a hedging tool for overseas investors and lift the foreign ownership cap on listed companies as potential catalysts that will attract more inflows of foreign funds.
The Hang Seng Index closed the session 1.46 per cent higher, rising 417.57 points, at 28,920.87. On the mainland, the Shanghai Composite Index rose 1.1 per cent, or 33.32 points, to close at 3,060.31, while the Shenzhen Component Index gained a stronger 1.4 per cent, or 136.91 points, to end the session at 9,841.24.
The CSI 300, which tracks blue chips listed on he Shanghai and Shenzhen bourses, gained 25.39 points, or 0.68 per cent, at 3,755.35.
“Recently, the Hong Kong stock market performance has tracked closely with that of the A-share market. If the Chinese market could rebound so quickly after the drop last week, such buying is mostly driven by investors who are more buying from ‘fear of losing out’. I do not think investors’ focus now is so much on analysing the fundamentals of the market,” said Ben Kwong Man-bun, a director at brokerage KGI Asia.
Hong Kong to launch MSCI China A Index futures for global investors to hedge against risks in Asia’s largest stock market
During the past two sessions the Shanghai benchmark has advanced more than 3 per cent, paring a 4.4 per cent tumble on Friday.
“Currently, investors in China probably do not expect the Chinese government would introduce any measures to impede the recent rallies and bullishness seen in Chinese equities,” said Kwong.
China’s security watchdog will examine whether to lift foreign investors’ ownership limits on A-share stocks, the Shanghai Securities News reported, citing Yan Qingmin, vice-chairman of the China Securities Regulatory Commission at the ongoing annual legislative meeting in Beijing.
Currently, offshore ownership of A-share listed companies is capped at 30 per cent while individual foreign investors face caps of 10 per cent.
According to a recent report by Credit Suisse, foreign investors own just 2 per cent of the A-share market. Ownership caps have been problematic for investors as stocks hitting that limit could potentially be deleted by index compilers from their global indices. One example is MSCI’s recent decision to remove Han’s Laser Technology from its MSCI All Shares Indexes.
“The better performance in the Hang Seng Index Tuesday morning was also a direct mirroring of this week’s better performance of the [mainland] A-share market, as many mainland corporates are constituents of the Hong Kong blue chip index,” said Alvin Cheung, associate director of Prudential Brokerage.
Still, Cheung expects the Shanghai Composite will see downside support at the 3,000-point level this week.
Banks and financial companies led the gains among Hong Kong-traded stocks.
AIA Group gained 1.82 per cent to HK$78.2 and China Construction Bank rose 1.58 per cent to HK$7.06.
“Under the current market environment where there is so much capital chasing blue-chip stocks, over the short term we see investors’ buying interests rotate among different sectors,” said Kwong.
Shares of Hong Kong Exchanges and Clearing (HKEX), the operator of Asia’s third-largest equity exchange, rose for a second day after announcing that it would begin selling index futures based on China’s A-share Index with MSCI.
The move would effectively end the monopoly of offshore derivatives based on the A-share index currently enjoyed by Singapore Exchange.
Leading the gains in Shanghai was China United Network Communications, which rose 9.01 per cent to 7.5 yuan, while China Petroleum & Chemical was up 1.87 per cent to 5.98 yuan and Agricultural Bank of China was up 0.81 per cent, to 3.74 yuan.
