Hong Kong investors are still underinvested with a large chunk of assets in cash, Saxo Markets says

Many local investors sat out the China reopening rally between November and January on the back of Beijing’s Covid-19 pivot: Saxo
Investors hold about 30 per cent of assets in cash, and prefer high-quality US bonds and Chinese tech stocks

Hong Kong stock market

Jiaxing Li

Published: 7:00am, 3 May 2023

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Investors in Hong Kong are sitting on a large pile of cash and generally lack appetite for equities because of overriding apprehension on China’s policy outlook and the strength of its economic recovery, according to Saxo Capital Markets.

Having missed the initial China reopening rally from November last year, clients are holding on to their reserves to assess the market direction, said Kenneth Shih, the head of wealth management at brokerage in Hong Kong. They prefer high-quality US bonds and selective Chinese technology stocks, he added.

“Clients are still staying pretty heavy in cash,” he said in an interview. “Through client conversations and our data on the platform, about one-third of assets is in cash. People are a bit unsure of what’s happening in the market. They want to stay safe. Many of them are cautious in terms of how they invest.”

Kenneth Shin, head of wealth management at Saxo Capital Markets in Hong Kong. Photo: Handout

Saxo Capital Markets is a local unit of Saxo Bank of Denmark, an online brokerage platform, whose clients include retail investors and private banks in the city, among others.

The low appetite for stocks showed why the Hang Seng Index has struggled to sustain a rally this year. The China reopening play has faltered since the benchmark peaked on January 27, erasing US$404 billion of value from its 76 blue-chip members, according to Bloomberg data. Their caution mirrored concerns expressed by clients of Goldman Sachs and Bank of America about risks to the investment theme.

Banks, tech lead Hong Kong stock losses as US banking crisis hits confidence

The Hang Seng Index Index slumped to a one-week low in early trading on Wednesday, as steep losses in US regional banks infected markets in Asia. All 11 members in the finance sub-index weakened, with HSBC losing 0.6 per cent to HK$58.30 and ICBC sliding 1 per cent to HK$4.16.

So far, strong macroeconomic data and less than stellar corporate earnings are painting a mixed outlook on the country’s post-Covid recovery. In Hong Kong, capital flight from the city has kept foreign investors at bay. The Hong Kong Monetary Authority has been forced to defend the local currency as the Federal Reserve continues to tighten its policy.

Goldman says China funds lack confidence in outlook, fear policy squeeze

Frustrated with China’s stock markets, foreign investors have sold Chinese stocks and are not coming back, Bank of America said in a report earlier this week. They pulled US$658 million from the onshore markets in April, according to Stock Connect, the first monthly net selling since November, when China abandoned its zero-Covid policy.

Saxo’s Shih said he is “relatively positive” policies on China’s tech industry are loosening. Besides, recent consumption statistics showed the recovery is gaining momentum. Investors need to be more selective with their picks, he said.

“The markets are moving very fast now,” said Shih. “It would make more sense if investors can be more active and selective with the opportunities, to complement the long term anchor of their portfolios.”

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