Hong Kong’s stocks have started to outperform shares traded in China’s onshore exchanges in Shanghai and Shenzhen after a year as underdogs, as corporate buy-backs and beaten-down valuations attracted bargain hunters to Asia’s fourth-largest capital market, The Hang Seng Index, down 6 per cent in the first quarter, declined less than the 10.6 per cent drop in the Shanghai Composite Index, and performed better than the 18.4 per cent plunge in the Shenzhen Component Index over the same period. Hong Kong’s market is in the position to outrun Shanghai and Shenzhen for the first time in a year, as the Hang Seng’s 20 per cent rise from its March 15 low puts it technically back in bull-market territory. The run-up in Hong Kong reflects the resilience among investors after weathering more than a year of China’s regulatory clampdown on technology stocks. The 66-stock Hang Seng is the world’s second-cheapest major benchmark in price-earnings terms after the Ibovespa index on Brazil’s Sao Paulo exchange, according to Bloomberg’s data. Hong Kong’s listed companies from Li Ka-shing ’s flagship CK Asset Holdings to this newspaper’s owner Alibaba Group Holding have jumped into the bargain hunt, collectively pouring HK$13.4 billion (US$1.7 billion) into buying back their own shares in the first quarter, according to Eastmoney.com ’s data. Last year, they ploughed US$5 billion into buy-backs , providing a cushion that guards against sudden tumbles in the market. “That’s an opportunity for long-term allocations, given the low valuation and the policy support,” said Dong Yi, an analyst at Shenwan Hongyuan Group in Shanghai. China plans new approach to end deadlock with the US over auditing The risk of being delisted from the New York Stock Exchange has also abated for Chinese companies, after the China Securities Regulatory Commission (CSRC) announced plans last week to revise China’s accounting rules to facilitate coordination with a US accounting oversight board. The Hang Seng Index is valued at 8.2 times current earnings, trading at a 12 per cent discount to their net-asset value, Bloomberg data showed. Local stocks lost out to yuan-denominated A-shares last year, as about a third of the benchmark’s constituents were exposed to Beijing’s regulatory crackdown, while extreme gyrations in the US markets spurred offshore capital to flee. Sentiment remained sluggish on China’s onshore markets, as resurgent outbreaks of the highly transmissible Omicron variant of Covid-19 in Jilin province and in Shanghai raised concerns about the nation’s ability to maintain its 5.5 per cent annual economic growth pace. Shanghai has been locked down for a week, after five consecutive days of record-breaking infections took the latest daily case number to pass 17,000. Why the Hong Kong stock market is making a massive comeback China’s central bank “is probably aware that cutting interest rate [alone] won’t necessarily aid an economy when the Omicron outbreak is hindering mobility,” said Sean Darby, a strategist at Jefferies. Hong Kong’s stocks are significantly cheaper than their mainland counterparts, creating an arbitrage opportunity for the stocks that are dual-listed in both markets. Local shares of Chinese companies (H shares) such as the oil refiner Sinopec are 30 per cent cheaper than their onshore stocks (A shares), according to a gauge that tracks the price gap between the two markets. A month ago, the gap was 34 per cent. “While our call on the bottom of Hong Kong stocks has to some extent materialised, investors can still participate in the rally and increase stock holdings in the market where there are a number of low-valued sectors such infrastructure and tech companies,” said Ping An Securities in a report on Wednesday.