Investors in China’s soaring stock market are increasingly turning to Hong Kong for bargains, egging on an investment boom on the back of large tech listings and shaking off fears of political risks in the bruised financial hub.
The country's blue-chip CSI300 index .CSI300 hit five-year-highs in recent sessions on a state-endorsed rally and a retail trading frenzy.
But Chinese investors and brokerages say they are increasingly drawn by Hong Kong shares, whose gains have been more modest.
“Elephants are dancing (in mainland China), but in Hong Kong, many stocks are lying on the floor,” Shen Weizheng, senior advisor at brokerage Direct Access, said during an online pitch to mainland investors on Wednesday.
“Buy more Hong Kong stocks. You don’t lose money buying bargains.”
Mainland-listed A-shares are on average 35 per cent more expensive than their Hong Kong-listed peers, also called "H-shares" .HSCE, widening from 23 per cent just a month ago .HSCAHPI. Share prices of the same company often differ vastly in the two markets.
A growing number of USlisted Chinese internet companies, including NetEase 9999.HK and JD.com 9618.HK, have chosen to float in Hong Kong through secondary listings amid heightened Sino-US tensions.
New York-listed Alibaba (9988.HK) (BABA.N), which completed its Hong Kong listing last year, could get the greenlight to enter the benchmark Hang Seng Index .HSI next month.
“Capital is flowing into the city. The more intense the rivalry between the U.S. and China, the more unique Hong Kong will be as a centre to welcome back leading Chinese companies listed in the U.S.,” said Hao Hong, managing director at BOCOM International.
With many more Chinese listings in the pipeline, “such investment opportunities can last for at least two years, potentially generating annualised returns of 20%,” said Richard Li, general manager of Shanghai-based Regan Fund Management Co, which has been actively investing in such listings.
The surge in investment from the mainland comes as Hong Kong becomes increasingly isolated from traditional western trading partners due to Beijing’s growing political reach into the financial hub.
China’s new National Security Law for Hong Kong, effective last week, is the latest flash point between Beijing and Washington, adding to other points of tension such as trade and tech supremacy.
Mainland interest in Hong Kong stocks, however, has only gone up.
Southbound turnover under the cross-border Stock Connect hit record levels on Monday. Net mainland purchases of Hong Kong stocks under connect totaled HK$300 billion ($38.71 billion) during the first six months, exceeding last year’s total.
Accelerating Chinese inflows also help strengthen the Hong Kong dollar HKD=D3.
“Stock valuation in Hong Kong is still attractive, so it’s natural for abundant mainland money to spill over,” said Hong Kong-based online brokerage Futu (FUTU.O). The brokerage, which mainly serves wealthy Chinese, witnessed a surge in trading volume on its platform this year.
Mainland money is largely behind the 230 per cent surge this year in Hong Kong-listed shares of Semiconductor Manufacturing International Corp (SMIC) (0981.HK), which is expected to command lofty valuations when it lists on Shanghai’s STAR Market.
For Hong Kong stocks such as SMIC, “what’s happening in the China market is changing the companies’ narratives,” Liu Youpu, partner at Shanghai-based hedge fund house Aifanzhe Investment Management Co said.
“We expect to see growing pricing power by mainland investors in the Hong Kong market.”