The flag of the Hong Kong Exchanges and Clearing Ltd. (HKEx), center right, flies from a mast outside the Stock Exchange One and Two buildings in Hong Kong
The frenzy that made Chinese stocks the world’s best performers is spilling over the border into Hong Kong. After propelling the Shanghai Composite Index to a 90 percent rally in the past 12 months, mainland investors are buying as many Hong Kong equities through the exchange link as regulators will allow.
Turnover in the former British colony jumped to an all-time high on Wednesday, volatility jumped and the city’s benchmark stock gauge surged the most since 2011. Gains accelerated in early yesterday trading, with the Hang Seng Index soaring as much as 6.4 percent before paring its advance to 2.9 percent.
Hong Kong’s USD4.7 trillion stock market is catching up with its Chinese counterpart after valuation discounts in the city reached the most extreme levels since 2011 and mainland authorities made it easier for domestic funds to use the cross- border bourse link. Columbia Threadneedle Investments and ABN Amro Private Banking say price gaps will keep shrinking as investors look for cheaper ways of betting on a recovery in the world’s second-largest economy.
“We’ve got the domestic liquidity from China making a statement that the Chinese economy is doing fine and shares are undervalued in Hong Kong,” said Ng Soo Nam, the Singapore-based head of Asian equities at Columbia Threadneedle, which manages about $506 billion globally. “Liquidity can now move between the two markets as there are less restrictions.”
On the mainland, stocks are surging as investors open new trading accounts at an unprecedented pace and take out record loans to buy shares.
The rally pushed prices for yuan-denominated A shares to the most expensive level in three years last month versus their dual-listed Hong Kong counterparts, known as H shares, according to the Hang Seng China AH Premium Index. The premium has slipped to 23 percent from its March 26 high of 36 percent.
While analysts have long predicted that the bourse link would help narrow valuation gaps, inflows into Hong Kong were tepid for the first four months of the program. Demand started to grow after China expanded the number of local fund-management companies eligible to use the connect on March 27.
“Access will broaden from here and will help reduce the A- H premium,” Laura Wang, a China strategist at Morgan Stanley in Hong Kong, said in a phone interview. “H shares are also trading at quite cheap levels.”
The 10.5 billion-yuan quota for buying Hong Kong stocks through the link ran out at 2:08 p.m. local time on Wednesday, and was used up at 1:45 p.m. yesterday. Total turnover on the Hong Kong exchange climbed to HK$250 billion ($32 billion) yesterday, while the HSI Volatility Index is heading for its biggest two- day gain on record.
While stocks are getting more volatile, the rally should continue over the next few days. “This rally does have legs,” Daphne Roth, the head of Asian equity research at ABN Amro Private Banking, which manages about $218 billion, said in a phone interview. Roth said she’s been recommending banks and insurers listed in Hong Kong in part because of their valuation discounts.
Momentum indicators signal gains in Hong Kong stocks may be rising too fast, too soon. The Hang Seng measure’s 14-day relative strength index climbed to 86.3 yesterday, the highest since 1993. Levels above 70 indicate to some traders shares are poised to decline. Twenty members of the Hang Seng China Enterprises gauge were trading at new 52-week highs Wednesday, the most since October 2007.
Hong Kong civil servant Juliana Lui is considering selling some of her shares after making a HK$30,000 profit yesterday.
“I’m trying not to buy too much because the market will likely go down a bit and some stocks are getting more expensive,” Lui said. “Some people are buying stocks like they are gambling in Macau. That’s not right.” Jonathan Burgos, Adam Haigh and Kyoungwha Kim
Housewife cheers stocks as workers punt on lunch break
Hong Kong’s stock market rally is drawing individual investors from all walks of life as the Hang Seng Index soars to a seven-year high.
With money from the mainland exchange link contributing to record turnover in the city’s $4.9 trillion stock market, a crowd of part-time traders hunched over computer screens at Bright Smart Securities & Commodities Group in Hong Kong’s central business district to take advantage of the surge in Chinese demand.
“Things are getting quite exciting,” said Chow Man, a 68- year-old housewife who favors Chinese banks and infrastructure stocks and says she has as much as HK$200,000 ($25,000) in play. “It’s becoming like a hobby for a lot of mainland investors to trade stocks now. That’s why more of them are taking opportunities in Hong Kong.”
Hong Kong locals are jostling with bargain-hunting Chinese investors after the Shanghai Composite Index’s world-beating rally pushed the discount on shares in the former British colony to the widest since 2011.
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