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Hong Kong - Hong Kong equities climbed to a two-year high amid speculation mainland investors are buying the city’s stocks to escape a small-cap selloff onshore. Gambling shares were among the biggest gainers on the gauge.
The Hang Seng Index rose 0.5% as of 08:42. Macau casino operators Galaxy Entertainment and Sands China rose at least 1.9% as analysts noted Chinese capital controls haven’t had a measurable impact on the gambling enclave. Onshore, the ChiNext Index of mainly small-cap companies fell 0.7% to extend this month’s drop to 7.7%.
Inflows from the mainland have helped Hong Kong’s benchmark equity gauge climb 22% this year to outperform most global peers. Onshore shares have largely been left behind amid concerns about rising funding costs, corporate governance issues, liquidity pressures and tougher regulatory oversight.
Chinese investors have bought about 35 billion yuan worth of Hong Kong stocks in July as of Friday, surpassing June’s total monthly net purchases according to Bloomberg calculations.
“Mainland investors are buying Hong Kong stocks to diversify their portfolios and hedge risks, thanks to the weak performance of mainland equities, especially the ones listed in Shenzhen," said Banny Lam, managing director and head of research at CEB International Investment.
The ChiNext, cowed by an official battle against speculators, is on the verge of becoming cheaper than the Nasdaq Composite Index for the first time on record. Its valuation based on reported earnings is now at 36, compared with 34.3 for the Nasdaq, leaving the narrowest gap since the Chinese board started in 2010.
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