Chinese funds buy record USD1.6b of Hong Kong stocks today

Hong Kong’s stock market now has a sizable bulwark against global bearishness: Chinese buyers from north of the border.

After the benchmark Hang Seng Index plunged as much as 2.7 percent yesterday in the wake of a U.S. slump, mainland investors purchased a net 10.2 billion yuan ($1.6 billion) of the city’s shares through exchange links with Shanghai and Shenzhen. That’s the biggest inflow since Chinese authorities widened the investment channel in December 2016, according to data compiled by Bloomberg using daily quota usages. By the close, the Hang Seng’s losses had narrowed to 1.1 percent.

For mainland funds facing limited investment options thanks to capital controls, buying Chinese companies in Hong Kong is an easy trade. Dual-listed firms like Bank of China Ltd. and China Shenhua Energy Co. have long been priced at a discount to their Shanghai shares, while a surging yuan against the Hong Kong dollar is making them cheaper still.

“Southbound liquidity is supporting the market and they’re concentrating on buying Chinese financial companies because of their discount,” said Steven Leung, executive director at UOB Kay Hian (Hong Kong) Ltd. “There will be more and more diversification from pension and life insurance money investing overseas and Hong Kong is still the first place for them to consider.”

Such inflows are translating into bigger returns, making the trade even more appealing. The Hang Seng gauge of Chinese stocks in Hong Kong has jumped 18 percent in the past two months, compared with a 5.6 percent advance by the Shanghai Composite Index. The fact that H shares are mostly large-cap state owned companies is also appealing to mainland funds as they avoid smaller companies facing higher funding costs thanks to a deleveraging campaign.

Banks and airlines led gains in Hong Kong today, with China Citic Bank Corp. jumping 3.9 percent and Air China Ltd. climbing 2.7 percent. Both companies are more than 30 percent cheaper in Hong Kong compared with their mainland listings.

The outperformance of H shares should continue thanks to increased allocation from wealth management and overseas institutions, according to Citigroup Inc. Kana Nishizawa, Bloomberg

Loan for HK tower buy may be biggest since 2015

A Chinese-led consortium is seeking a financing package of HKD33 billion ($4.2 billion) to buy a landmark skyscraper, testing the waters for what could be the biggest property loan in Hong Kong since 2015.

The jumbo borrowing comes amid the Hong Kong Monetary Authority’s efforts to tighten lending for developers. At HK$33 billion, the loan to acquire The Center would be the largest real estate-related financing since billionaire Li Ka-shing borrowed HK$55 billion to spin off Cheung Kong Property Holdings, according to data compiled by Bloomberg.

The terms of the financing package are still being finalized and the numbers could change, according to people familiar with the matter, who are not authorized to speak publicly and asked not to be identified.