HK stocks hit high; Bei­jing wary

The China Post - - COMMENTARY - BY AARON TAM

Hong Kong stocks stormed to seven-year highs un­der a new pol­icy that al­lows main­land in­vestors easy ac­cess to the city’s bourse, but while an­a­lysts say the rally has some way to go they warn it will be tem­pered by cool­ing mea­sures from a ner­vous Bei­jing.

Buoyed by hopes of a stim­u­lus to sup­port a slow­ing econ­omy, main­lan­ders have been mak­ing the most of eas­ier re­stric­tions on a cross-bor­der ex­change link-up to flood into the south­ern city af­ter a year-long rally in Shang­hai that has dou­bled its value.

The rally in the Hang Seng In­dex re­sem­bles the ex­plo­sion in Hong Kong’s prop­erty mar­ket, which has seen prices soar as flush main­lan­ders pour in.

But Hong Kong shares fell 2.02 per­cent Mon­day af­ter main­land au­thor­i­ties last week tight­ened fi­nanc­ing rules for mar­gin-trad­ing while al­low­ing fund man­agers to lend eq­ui­ties for short sell­ing. On Tues­day they bounced back, jump­ing 2.79 per­cent.

The moves were seen as a bid to stem spec­u­la­tion by the mostly pri­vate re­tail traders north of the bor­der who have bor­rowed vast sums to make a quick profit.

How­ever the China Se­cu­ri­ties Reg­u­la­tory Com­mis­sion in­sisted the new rules were not de­signed to cool the mar­ket, but to foster sta­ble devel­op­ment.

“They don’t want the share mar­ket to go crazy — they want a slow bull mar­ket,” said an­a­lyst Fran­cis Lun, CEO of Hong Kong-based Geo Se­cu­ri­ties.

“They are afraid that the mar­ket will get ahead of it­self and cre­ate a bub­ble.”

Lun said the reg­u­la­tors’ move may tem­per sen­ti­ment to an ex­tent that would have a knock-on ef­fect for Hong Kong.

“I think the rate of mar­ket rise will be slowed, although the bull mar­ket will con­tinue,” he said.

“More than 50 per­cent of shares in Hong Kong are China shares, so what­ever hap­pens in China will af­fect Hong Kong.”

An­a­lysts agreed that de­spite the new mea­sures Hong Kong would con­tinue to be seen as a place for bar­gains.

“In the short-term it will slow down (as) quite a lot of in­vestors are try­ing to take prof­its,” said Cas­tor Pang, Core Pa­cific Ya­maichi head of re­search.

But he de­scribed that as a “pull­back,” rather than a down­ward trend.

“In the long-term ... the dis­count in shares seems to be a ma­jor driver,” Pang said.

The cre­ation in Novem­ber of the Stock Connect trad­ing plat­form be­tween Hong Kong and Shang­hai was seen as a key step to­wards mak­ing the PRC’s yuan cur­rency freely con­vert­ible.

Of­fi­cials trum­peted the link as open­ing up the main­land’s clos­eted stock mar­kets to the out­side world, giv­ing for­eign­ers ac­cess to main­land com­pa­nies not quoted else­where.

How­ever, ini­tial de­mand was lack­lus­ter, prompt­ing a de­ci­sion in March to in­clude Chi­nese mu­tual funds, which opened the flood­gates that saw turnover in Hong Kong hit record highs twice this month.

The Hang Seng In­dex has risen 13 per­cent since the Stock Con- nect was widened, and seen its best per­for­mance since De­cem­ber 2007.

‘I still want to buy’

The rally has led to some huge gains for some chips, with Hong Kong Ex­change and Clear­ing surg­ing 50 per­cent in the first two weeks of April, China Mo­bile up 14 per­cent and Len­ovo jump­ing al­most 20 per­cent.

Like many other main­land Chi­nese in­vestors, You Jian­hong, who works in the fi­nance in­dus­try, be­lieves Hong Kong stocks are a bar­gain.

“It’s cheap and the val­u­a­tions are low,” You, who just opened her Shang­hai-Hong Kong Stock Connect trad­ing ac­count, said.

“The han­dling charge is quite high but I still want to buy,” she said, adding that Hong Kong stocks were not limited by a 10 per­cent daily up or down limit like main­land mar­kets, so that was more at­trac­tive for trad­ing.

The main­land is now work­ing on set­ting up a trad­ing link be­tween Hong Kong and neigh­bor­ing Shen­zhen’s stock mar­ket, where daily trad­ing vol­umes some­times ex­ceed those of Shang­hai.

The new link-up, which main­land of­fi­cial Li Ke­qiang said would be im­ple­mented “at an ap­pro­pri­ate time,” is be­ing seen as ac­cel­er­at­ing the in­ter­na­tion­al­iza­tion of the A-share mar­ket.

Pang said that while the eas­ier ac­cess to Hong Kong would con­tinue to spur in­vestors, they would still have one eye on stim­u­lus pol­icy, although he added that they are “still cau­tious about whether the Chi­nese gov­ern­ment will suc­cess­fully turn the econ­omy around.”

Of­fi­cial data showed the main­land’s econ­omy grew 7.0 per­cent in Jan­uary- March, the slow­est quar­terly rate in six years at the height of the global fi­nan­cial cri­sis.

That sparked hopes for fur­ther mon­e­tary eas­ing. The peo­ple’s Bank of China has cut in­ter­est rates twice since Novem­ber and on Sun­day low­ered the amount of cash lenders must keep in re­serve for the sec­ond time this year.

And Li last month sug­gested the gov­ern­ment had the weapons to sup­port growth if nec­es­sary.

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