Hong Kong Exchanges & Clearing Ltd (HKEx) capped its biggest two-day drop since June 2012 as Chinese investors showed little interest in the territory’s stocks on the second day of the trading link with Shanghai.
Shares of the world’s most expensive bourse operator lost 2.4 percent to HK$173.90 at the close in Hong Kong, bringing its two-day slide to 6.7 percent. Volume traded by short-sellers rose to the highest in seven months on Monday, according to exchange data compiled by Bloomberg.
While paring its advance to 31 percent since the trading connect was announced in April, Hong Kong Exchanges is still the best performer on the Hang Seng Index this year.
“There was a lot of exuberance leading up to this trading link,” Arjan van Veen, a Credit Suisse Group AG analyst based in Hong Kong who recommends selling the shares in the short term, said in a telephone interview.
“There was always going to be a risk that expectations were very high and the start was a bit slower, which leads to a bit of disappointment. You’ve seen that in the share price the last couple of days,” Van Veen said.
Monday’s stock-link debut marked one of China’s biggest steps toward opening up its capital account and turning Shanghai into an international financial center.
Chinese buyers used less than 10 percent of their daily Hong Kong quota yesterday, after taking up just 1.8 billion yuan (US$294 million) of the 10.5 billion yuan limit on Monday. International investments in Shanghai also slowed.
About 81 percent of brokers surveyed by Bloomberg News on Friday last week predicted the quota for Shanghai stocks would be used up on the first day. Half of those surveyed forecast the same result for Hong Kong purchases.
Short interest in Hong Kong Exchanges dropped to about 0.3 percent of shares outstanding as of the end of last week, the least since at least 2006, according to estimates from Markit.
Hong Kong Exchanges traded at 39.7 times estimated earnings yesterday, data compiled by Bloomberg show. That compares with a multiple of 23.5 on Monday for Intercontinental Exchange Inc, which runs the New York Stock Exchange and Euronext bourses. The Hang Seng Index is valued at 10.9 times projected profits.
The link allows any global investor with an account at a participating Hong Kong brokerage to buy a selection of Shanghai shares, expanding access to the US$4.2 trillion equity market from a small number of foreign institutional money managers. Chinese traders with at least 500,000 yuan in their accounts are eligible to purchase Hong Kong shares through the connect.
“It’s starting a bit slower than some people expected, but it’s a huge positive long-term,” Van Veen said. “It will build and build and build. If you’re taking a long-term view, you probably still want to hold on to it.”
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