Stocks power to a high on dividends, property
Hang Seng Index up 25% from lows in January
Hong Kong: Hong Kong’s benchmark stock index jumped to a nine-month high on optimism over the potential scrapping of some dividend taxes and new initiatives to boost Chinese property purchases.
The Hang Seng Index climbed 2.3% last Friday, with some of the biggest gains being made by stocks with relatively high dividend yields such as Hong Kong Exchanges & Clearing Ltd and China Construction Bank Corp. A Bloomberg gauge of China property shares surged 11%.
The latest round of positive news helps consolidate the bounceback in Hong Kong stocks from their lows set in January, with the Hang Seng Index having now risen more than 25% from its close on Jan 22.
They add to other encouraging factors including relatively low valuations and government initiatives to boost the struggling economy and equity market.
Shares rallied from the open following a report late last Thursday that China is considering a proposal to exempt individual investors from paying dividend taxes on Hong Kong stocks bought via Stock Connect.
Regulators are reviewing the plan submitted by the city to waive the 20% tax on dividends from Hong Kong shares bought via the link that connects to Shanghai and Shenzhen, according to people familiar with the matter.
Property shares advanced after the cities of Hangzhou and Xi’an scrapped all their remaining curbs on residential property purchases, fuelling optimism that more local governments will follow suit.
The dividend-waiver plan would be a significant positive for trading volumes in Hong Kong, with brokers and select banks being potential beneficiaries, Jpmorgan Chase & Co analysts including Harsh Wardhan Modi wrote in a client note.
“We believe it is fair to assume a degree of spike in south-bound turnover on expectations of approval and further, if approval comes,” they said.
Shares of bourse operator Hong Kong Exchanges & Clearing climbed 7.6%, while China Construction Bank gained 6.8% and Ping An Insurance Group rose 5.8%. Among property shares, Shimao Group Holdings surged 60%.
Mainland investors had already been adding to their Hong Kong shareholdings in recent months, having purchased Hk$86bil of the assets in March and Hk$80bil in April.
Sceptics said the rally in Chinese stocks hasn’t yet been supported by improving fundamentals. Strategists at Citigroup Inc downgraded the nation’s equities to “neutral” last Friday, arguing the recent rally has taken place despite weakening fundamentals.
Mainland China shares underperformed those in Hong Kong.
The benchmark CSI 300 Index closed little changed as investors assessed a report saying President Joe Biden’s administration is poised to unveil a sweeping decision on China tariffs as soon as this week.
The new tariffs on China will focus on industries including electric vehicles, batteries and solar cells, with existing levies largely being maintained, according to people familiar with the matter.
Market watchers are already bracing for a potential tariff decision, saying this was expected ahead of elections in the United States.
“We are not overly concerned about that because, to us, geopolitics is now a structural part of investing in China,” said John Lin, chief investment officer of China equities at Alliancebernstein.
“Everybody understands that there will be periods where things get a little worse and there will be periods where things get a little better. And that fluctuation to us is really an opportunity to add or reduce risk but not a reason to stay away from the market overall.”