Hong Kong brokers have a unique theory on the mysterious Chinese capital buying up local stocks
Local brokers are scratching their heads over what they describe as unusual or even “mysterious” inflows of mainland capital chasing up Hong Kong stocks in the past week, which they say may continue to bet on previous laggards or smaller-cap stocks.
They highlight Chinese banks, insurers, car makers, as well as Hong Kong developers as among sectors that may benefit.
Monday’s Hong Kong stock market turnover increased to HK$91 billion, the fourth straight session it has remained above the HK$80 billion mark.
Capital flows into Hong Kong equities have gained momentum since last Wednesday, when daily turnover jumped 30 per cent from Tuesday’s HK$69 billion.
Last week, daily turnover averaged nearly HK$82 billion, up 48 per cent from the previous week.
In contrast, January’s daily turnover averaged HK$57.2 billion, and 2016’s daily average was HK$66.9 billion.
“The upsurge in turnover is quite unusual, as there was no major good news,” said Li Ka Ho, an analyst for China Galaxy International Securities. “We can see the momentum suddenly picked up starting on Wednesday afternoon. The share price of Hong Kong Exchanges & Clearing also increased significantly.”
Li compared the activity with April 8, 2015, when Hong Kong stocks unexpectedly opened nearly 1,000 points higher and the daily turnover soared to an impressive HK$250 billion, after China allowed mainland mutual funds to invest in Hong Kong shares via the Shanghai-Hong Kong Stock Connect.
Amid expectations of mainland money pouring into the Hong Kong market, stock turnover rose even higher to touch an all-time high of HK$291.5 billion on April 9, 2015.
However, turnover fell sharply after the A share boom turned to bust in June. By December 2015, Hong Kong market’s average daily turnover during the month dropped to HK$61 billion.
Nonetheless, “this time the situation is slightly different, as investors seem to be more rational than 2015”, Li said.
He believes new funds will chase previous laggards such as mainland Chinese banks, property developers, and insurance companies.
“I think funds will flow to mid-cap stocks, such as PICC Property & Casualty and People’s Insurance Company of China,” he added.
Analysts from Hua Nan Securities agreed with a theory put forward in local media The Hong Kong Economic Journal that the money behind Thursday’s surge is related to mainland Chinese funds “parking” in Hong Kong since Beijing suspended several overseas mergers and acquisition deals last year.
“The money, with an estimated total amount of HK$10 billion, may have received the green light in purchasing Hong Kong equities, especially the H shares,” Hua Nan Securities said.
“If the sentiment continues, the money will chase previous underperformers such as mainland Chinese banks and Hong Kong property developers,” they added.
Liang Yonghuo, an analyst for China Merchants Securities (Hong Kong), said Chinese car makers will be also a bright spot in the market, especially Geely Auto, a Chinese privately-owned car manufacturer that owns Volvo Cars.
“We have seen mainland money continue flowing into the auto sector through the Stock Connect programmes,” he said.
Last Friday, Guangzhou Auto, Geely Auto, and Great Wall Motor were among the top 10 most heavily traded shares by mainland investors through the Shanghai-Hong Kong Stock Connect programme.
On Monday, Geely Auto and Guangzhou Auto continued to attract capital inflows from the mainland.
“Their [Hong Kong-listed shares of Chinese car makers] low valuations and high growth potential are attractive to mainland investors,” Li said.
Geely Auto will join the benchmark Hang Seng Index from March 6, replacing Hong Kong sourcing company Li & Fung, according to a statement by Hong Kong’s stock index compiler on Friday.
Geely Auto’s shares surged 6.9 per cent to close at HK$10.78 on Monday, up for a third day in a row. Rivals Guangzhou Auto jumped 4.6 per cent to HK$13.14 while Great Wall Motor was up 2.5 per cent to HK$8.87.
“The primary choices of the southbound capital should be high growth companies and low valuation shares,” Li added.