Hong Kong stocks surge by most in 4 weeks as mainland China funds ramp up buying before Fed policy meeting

Hang Seng Index’s relative-strength indicator suggests the recent stock sell-off was overdone, and market may be poised for a turnaround
Mainland funds bought HK$7.4 billion of Hong Kong-listed stocks on Tuesday the most since June, adding to HK$28.1 billion of net purchases last week

Hong Kong stock market

Jiaxing Li

Published: 10:22am, 1 Nov 2022

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Hong Kong stocks rallied by the most in about four weeks as mainland funds scooped up the biggest amount of shares since June after a sell-off pushed the local market into an oversold zone. Traders ignored concerns about the Federal Reserve policy meeting later this week.

The Hang Seng Index jumped 5.2 per cent to 15,455.27 at the close of Tuesday trading, the biggest advance since October 5 to climb out from a 13-year low. The Tech Index surged 7.8 per cent while the Shanghai Composite Index added 2.6 per cent.

Alibaba Group jumped 7.6 per cent to HK$66.10, Tencent soared 10.6 per cent to HK$227.40, and Meituan soared 11.9 per cent to HK$139.60. BYD gained 4.5 per cent to HK$183.60, while the trio of electric-vehicle makers, Nio, Li Auto and Xpeng, added 5.9 to 9.2 per cent.

The Tracker Fund rose 4.9 per cent to HK$15.55 as the city’s biggest exchange-traded fund attracted record inflows in recent weeks, while Hang Seng China Enterprises Index ETF gained 5.6 per cent to HK$52.80.

Mainland funds bought HK$7.4 billion (US$986.1 million) worth of Hong Kong-listed stocks on Tuesday, the most since June 30, according to Stock Connect data. They added HK$28.1 billion of net purchases last week, the biggest weekly inflow in the past year, according to Goldman Sachs.

“The rally is mainly because traders started to add positions in tech stocks amid the market low,” said Kenny Wen, head of investment strategy at KGI Asia. Speculation that the Fed might slow its rate hikes in December also aided sentiment, he added.

Mainland funds bought Tencent, Meituan, WuXi Biologics, CNOOC, China Mobile and Koolearn Technology, the five most actively traded stocks in the Southbound channel. The stocks, including Kuaishou Technology, were also the most active in October, according to Stock Connect data.

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The rally came as top global banks from JPMorgan Chase to Credit Suisse arrived in town for the Global Financial Leaders Summit hosted by Hong Kong Monetary Authority. Many are backing the vast opportunities in China, singling out the multi trillion-dollar market in the wealth management industry.

The Hang Seng fell 14.7 per cent in October, the most in 14 years, taking the decline to 37.2 per cent in 2022. Its 14-day relative-strength indicator has fallen below 30, a threshold that indicates the drop was excessive. The Shanghai Composite Index and the CSI 300 Index also fell into the oversold territory.

Those losses followed concerns about new snap lockdowns revived after new cases prompted authorities to shut some casinos in Macau, while the Disneyland resort in Shanghai closed its doors. Workers at Foxconn’s iPhone assembly plant in Zhengzhou flee the site after complaining about living conditions amid curbs.

“A positive re-rating of Chinese equities will be contingent on whether the Chinese authorities can regain credibility and win back investors’ confidence, something that is difficult to predict at the moment,” said Yan Wang, China strategist at Montreal-based Alpine Macro, a research firm. “Our sense is that the selloff in Chinese equities is overdone, and that reducing exposure at current levels does not make strategic sense.”

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Investors also shrugged off a private report showing China’s factory activity shrank in October, impacted by Covid-control measures. The Caixin PMI Manufacturing index hit 49.2 in October, versus a four-month low of 48.1 in September. A reading below 50 indicates contraction.

Elsewhere, the US Federal Reserve is likely to raise its key rate by another 75 basis points later this week, according to Fed fund futures.

Three stocks advanced on their trading debut in Shenzhen. BMC Medical surged 142 per cent to 290 yuan, Pharma Resources Shanghai jumped 28.1 per cent to 51.23 yuan, while Techshine Electronics added 1.9 per cent to 32.10 yuan.

Asian stocks inched up before the Fed decision, with the Nikkei 225 in Japan adding 0.3 per cent while indexes in South Korea and Australia gained 1.7 to 1.8 per cent.

Additional reporting by Zhang Shidong