China’s investors are piling into Hong Kong shares via Stock Connect channel in the longest shopping spree in 18 months

Chinese investors are not abandoning Hong Kong’s stocks, even as Asia’s third-largest equity market endures a double whammy of social upheaval and jitters about a global recession.

Mainland traders have been buying the city’s stocks for 21 straight days through Friday via the cross-border investment channel known as the Stock Connect, pouring an aggregate HK$45.3 billion (US$5.8 billion) into equities listing on the Hong Kong stock exchange. That was the longest buying spree since February 2018, when capital poured in for 31 consecutive days.

While global fund managers are taking a cautious approach to Hong Kong stocks, with the protest against a controversial extradition bill descending into the city’s biggest civic unrest, some Chinese investors are setting their eyes on the lucrative price discrepancy between the two markets.

Hong Kong stocks currently trade at a 23 per cent discount to the mainland-traded shares, the biggest for such a price gap in almost one and a half years, according to a gauge compiled by the Hang Seng Bank to track the discrepancy.

“The low valuation will create entry opportunities for investors,” said Gerry Alfonso, director with the international business department at Shenwan Hongyuan Group in Shanghai. “There is a lot of macro noise but valuations in markets such as Hong Kong tend to be the deciding factor in the long run. A lot of the macro noise is already reflected in prices.”

The Hang Seng Index is valued at 10.3 times earnings, cheaper than the multiple of 13.7 times in the Shanghai Composite Index, according to Bloomberg data. That makes Hong Kong’s key benchmark the cheapest among Asia’s major markets on a price-to-earnings basis. Out of the 10 industries on the index that its constituents are engaged in, five trade below their book values, the data showed.