Mainland Chinese stocks buck trend as HK joins global slide

Mainland Chinese stocks rose on Tuesday on heavy buying by retail investors flush with liquidity but the Hang Seng Index fell in tandem with major international markets amid fears over global economic fundamentals.

The Shenzhen Composite Index rose 2.19 per cent to 2,425.9 points, its highest close, while the Shanghai Composite Index closed up 1.56 per cent at 4,401.22 points in the third consecutive advance.

The outstanding margin purchases in the Shanghai and Shenzhen markets totalled 1.9 trillion yuan (HK$2.37 trillion) on May 7, said a CCB International report. This compares with the 1.6 trillion yuan of margin debt in April and is more than two-and-a-half times the figure six months ago.

The Hang Seng Index closed 1.12 per cent lower at 27,407.18 points while the H-share index fell 1.48 per cent to 13,973 points.

The turnover in the Hong Kong market was HK$138.84 billion. Northbound turnover of the Shanghai-Hong Kong Stock Connect was 6.86 billion yuan, while southbound was HK$5.21 billion.

Fosun International was the most heavily traded stock in Hong Kong, with a turnover of HK$11.36 billion.

From April 30 to May 6, Hong Kong equity funds saw inflows of US$94 million, compared to more than US$400 million a few weeks ago, CCB said.

Ben Kwong Man-bun, a director of KGI Asia, said the divergent movement of the Hang Seng and Shanghai Composite indices was due to the dominance of retail investors in the mainland Chinese markets and that of foreign institutional players in the Hong Kong market.

"China benefits from easing monetary conditions. Liquidity is ample. So investor sentiment is buoyant," Kwong said.

China's interbank repo rates slid to their lowest level since 2012, reflecting abundant liquidity in the market, CCB said.

Cuts in the benchmark deposit and lending rates took effect in mainland China on Monday, with many analysts expecting more easing measures by Beijing to prop up the slowing economy.

"In Hong Kong, it is more the foreign institutional investors, but they focus on fundamentals rather than momentum trading," Kwong said. "The fund flow into Hong Kong is less favourable than before. Value-based investors don't want to jump into the Hong Kong market now."

Hong Kong's slide followed the slump in international markets. European stocks fell for the first time in four days as euro zone government bonds declined and investors watched developments in Greek bailout talks. The S&P 500 was down nearly 0.5 per cent.

The international bond sell-off was also affecting Hong Kong stocks, Kwong said.

US government bonds suffered their worst sell-off in more than two months on Monday.