International trading of A-shares highest in two years in August
A strong yuan and solid corporate earnings see global buyers snapping up shares through the Shanghai, Shenzhen Stock Connects. Hang Seng Index is Asia’s best performing index this year
International investors bought Chinese A-shares in near-record numbers in August, two years after the launch of the Stock Connect Schemes linking Hong Kong with Shanghai stock exchange , and last year with the Shenzhen bourse, attracted by a stronger yuan, solid corporate earnings and improved mainland economic prospects.
Likewise, mainlanders also traded the most Hong Kong stocks in two years via the southbound route, boosting the Hang Seng Index and positioning the stock market as the best-performing exchange in Asia in the first eight months of the year.
The Hong Kong and Shanghai markets were “connected” in November 2014, allowing northbound trading by international, and southbound by domestic investors, while the Shenzhen Stock Connect sparked into life in December 2016.
Northbound turnover saw international investors trade 208 billion yuan (US$31.5 billion) worth of A-shares listed in Shanghai and Shenzhen in August, according to the latest data from Hong Kong Exchanges and Clearing (HKEX).
That number was divided between 119 billion yuan in buy orders and 89 billion yuan in sell orders.
It was the second highest result on record, after June 2015’s turnover saw international traders invest 226 billion yuan in Shanghai-listed A-shares, as the benchmark Shanghai Composite Index (SCI) hit a seven-year high, just before the market rout that erased almost US$5 trillion in market value a fortnight later.
The SCI closed at 3,360.81 points at the end of August, 2.7 per cent higher, its strongest monthly gain since November 2016, and its third rise in as many months.
“The yuan increased 2.3 per cent against the US dollar in August while a steady stream of data from the mainland showed strong improvement in the Chinese economy,” said Jasper Lo Cho-yan, chief strategist at King International Financial Holdings.
“The market widely expects the stock market rallies in both the mainland and Hong Kong to continue at least until October, when the Communist Party convenes for its much-anticipated five-yearly Congress, now confirmed as October 18 by Beijing. International fund flow into A-shares will continue in the near term,” Lo said.
The Congress will reveal who will lead the country, how the economy is faring, and what financial economic policy measures are planned for the next five years.
HKEX’s latest monthly statistics showed northbound turnover was higher than southbound with mainlanders trading HK$223 billion (US$28.5 billion) worth of Hong Kong stocks in August through the Shanghai and Shenzhen exchanges – the highest levels since April 2015, when they hit their monthly record of HK$235 billion.
Strong buying interest by mainlanders in Hong Kong stocks in recent months has played a strong role in pushing the benchmark Hang Seng Index above 28,000 last Wednesday for the first time since 2015. It is now on its longest winning streak since October 2007, and is up 27 per cent this year.
“The current market rallies in both Hong Kong and the mainland is much healthier than in 2015,” said Gordon Tsui, managing director of Hantec Pacific.
“Then the rally was driven by excessive leverage, but this recent rally in both markets is supported by solid corporate earnings,” Tsui said.
“Many A- and H-shares, such as the state-owned banks, brokers, insurance companies and property firms, delivered sounds earnings growth in the first half.
“And these have attracted international fund houses to increase their holdings in A-shares while mainlanders also swung towards investing in Hong Kong stocks,” Tsui said.
In fact, all directions of traffic have seen recent strong increases: northbound turnover in Shanghai A-shares were up 18 per cent month on month in August, trading in Shenzhen stocks from was Hong Kong 22 per cent higher, southbound trading via Shanghai to Hong Kong stocks rose 9 per cent in the same month, and those via Shenzhen into Hong Kong stocks jumped 7 per cent.
Ping An Insurance, traditional Chinese liquor producer Kweichow Moutai, and Baoshan Iron & Steel were the most-traded A-shares by international investors during August via the Shanghai Stock Exchange.
In Shenzhen, the hot stocks were Hangzhou Hikvision Digital Technology, Midea Group and Gree Electric Appliances of Zhuhai.
In Hong Kong, southbound trading shows mainlanders’ favourites were China’s tech giant Tencent, banking major ICBC and developer Sunac.