Five Hong Kong stocks most vulnerable to mainland China fund reversal as Lunar New Year holiday brings liquidity test

A five-day trading pause in China will test support for Hong Kong stocks recently supercharged by mainland cash

Tencent, China Mobile, CNOOC, Meituan and HKEX have been top recipients of southbound fund inflows since November last year

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Retail investors watch stock prices at the Shanghai Stock Exchange. Will the Lunar New Year holiday stem the cash inflows into Hong Kong markets? Photo: AFP

Published: 7:30am, 8 Feb 2021Updated: 9:09am, 8 Feb 2021

Hong Kong stock investors are cherishing one of the best winning runs in recent history. The Hang Seng Index has climbed 7.6 per cent since the start of the year, capping a 35 per cent jump from last year’s low. Kuaishou Technology, the city’s hottest stock, jumped as much as 200 per cent in its Friday debut.

The returns have been immense for market leaders and sanction victims alike, thanks to a record amount of purchases by mainland funds at the turn of the new year. Tencent Holdings has surged 30 per cent over the period, while China Mobile and CNOOC – bashed through months of US-China feud and sanctions – have rallied by 6 per cent and 19 per cent each.

Chinese fund managers are the single biggest power propelling Hong Kong stocks to current heights. They have spent almost HK$369 billion (US$47.6 billion) in net purchases through Stock Connect this year, according to stock exchange data, bringing the tally to just over HK$1 trillion since the end of 2019.

What could possibly go wrong?

The Lunar New Year break could offer the first test of nerves with potential for a liquidity drain, given a timing mismatch. Hong Kong’s markets will shut on February 12 and 15, while mainland China’s bourses will pause for five trading days from February 11 to 17.

The Stock Connect’s southbound channel closes earlier from February 9 while the northbound pauses from February 11, according to stock exchange data.