Cash is pouring into Hong Kong stocks from across the Chinese border.
Chinese investors have been net buyers of the terrotory’s shares for 104 consecutive trading days, sinking 43.8 billion yuan (US$6.8 billion) into equities from October last year through Tuesday, data compiled by Bloomberg tracking investments via the exchange link with Shanghai showed.
Chinese traders have now put more money into Hong Kong than global asset managers have invested in Shanghai, a reversal of flows in the link’s first year, the data showed.
As concern persists about a further slide in the yuan, Chinese investors are piling into cheaper shares across the border that have lagged behind their Chinese counterparts for years.
While the flows are small relative to estimates of the record capital flight from China last year, they are another sign of what is at stake for policymakers seeking to stabilize the currency and stem outflows by providing credible investment options at home.
“In China, there is talk of an asset drought — people don’t find domestic assets particularly attractive,” said Tai Hui (許長泰), the Hong Kong-based chief Asia market strategist at JPMorgan Asset Management. “They are investing overseas in any way possible including via the southbound stock connect.”
Buying Chinese stocks has been a losing proposition this year, with the benchmark Shanghai Composite Index down 14 percent.
Other investment alternatives, such as property, are coming under scrutiny as authorities impose fresh curbs after home prices jumped in the largest cities such as Shanghai and Shenzhen.
While Hong Kong’s Hang Seng Composite Index has lost 8.1 percent this year through until Wednesday, that has not deterred Chinese investors. They utilized part of their 10.5 billion yuan daily quota for link purchases each day from Oct. 28 last year through Wednesday, the longest such streak since the mutual access program began in November 2014.
In comparison, northbound flows, which reflect foreigners buying Shanghai-traded shares, have only picked up since late February.
Cash flowed into Hong Kong stocks via the link again in early trading yesterday, as the Hang Seng Composite Index added 0.4 percent. The benchmark Shanghai gauge lost 0.2 percent.
Valuations on Chinese companies listed in Hong Kong plunged to a record low in February before rebounding as the yuan stabilized, central banks around the world took steps to boost stimulus and commodity prices rallied.
Even after entering a bull market last week, the Hang Seng China Enterprises Index trades at 6.8 times estimated earnings, at least 35 percent below its 10-year-average and the current multiple on Shanghai’s gauge.
Dual-listed shares are 39 percent more expensive in China, the Hang Seng China AH Premium index showed, which rose to a six-week high on Tuesday.
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