HK- listed firms blitz mainland

Roadshow promotes latest Stock Connect link

Scores of Hong Kong- listed companies – many small – are on a roadshow blitz in the Chinese mainland to whet the appetites of investors ahead of the launch of a cross- border investment link between Shenzhen and Hong Kong, Reuters reported over the weekend.

Mainland investors are enthusiastic, viewing the Shenzhen- Hong Kong Stock Connect as a way to buy relatively cheap growth companies and hedge against a rapidly falling yuan, which hit an eight- year low on Friday against the US dollar.

“Valuations of Hong Kong stocks are very low. In addition, the Hong Kong dollar is pegged to the US dollar, so when you buy Hong Kong dollar assets, you’re actually buying into the US dollar,” Ma Hong, general manager of Shanghai TopFund Investment Management Co, said at an event in Shanghai promoting the trading link.

“For us, the Hong Kong market represents a strong currency plus cheap assets ... we need to embrace it,” Ma said.

It has not been specified when the link would open, but the head of Hong Kong Exchanges and Clearing said Friday it would go live “in a few more days”.

The link would allow mainland investors access to about 100 smaller companies listed in Hong Kong. The existing Shanghai- Hong Kong link allows investment in 318 bigger Hong Kong- listed companies.

Since the Shanghai link opened two years ago, mainland investors have bought a net 294.7 billion yuan ($ 42.8 billion) of Hong Kong shares, more than double the purchases of Shanghai shares by Hong Kong investors, highlighting the more lukewarm interest of foreign investors in Chinese shares.

The southbound money flow has halved the premium that mainland listed shares had over Hong Kong shares this year alone.

UBS forecast net inflows from the mainland into Hong Kong next year would be 160 billion yuan under the two links, but some are making bolder predications.

Industrial Securities, a mainland brokerage, estimated that Chinese insurers, which have recently been allowed to participate in the connect programs, will invest 400 billion yuan to 600 billion yuan into Hong Kong stocks by the end of 2017.

China maintains tight controls on capital movements across its borders and since the stock market crash last year has been clamping down on capital outflows.

Zhou Jie, chairman of Haitong Securities, told a promotional event sponsored by the brokerage in Shanghai that there is a demand in China for global investment opportunities.

The Shanghai and Shenzhen trading links offer a channel for that demand. But while they give Chinese investors a chance to hedge against the falling yuan, they are closed systems aimed at preventing Chinese money leaking offshore.

Mainland investors pay for their Hong Kong purchases in yuan and receive the proceeds in yuan when they sell the shares. They can not use their Hong Kong shares as collateral for offshore loans.

Outperformance by the Hang Seng Small- cap Index suggests that some investors in Hong Kong may already be pre- empting the Chinese demand.

The index is up more than 12 percent since the Shenzhen link was approved by China in August.