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Hong Kong - Chinese stocks in Hong Kong headed for a 14-month high as investors honed in on some of the world’s cheapest equities. Automakers and financial shares led gains.
The Hang Seng China Enterprises Index rose 1.2% as of 09:27, breaking through the psychological 10 000 index level milestone and on course for the highest close since November 2015. The Hang Seng Index added 0.3% while the Shanghai Composite Index rose for a second day to close 0.5% higher.
Investors are pouncing on beaten-down stocks in Hong Kong as China’s economy shows signs of accelerating and uncertainty about US President Donald Trump’s policy priorities spurs some to question the outlook for the US equity market.
After sinking 22% in the two years through December 31, the Hang Seng China Enterprises Index ranks among the five cheapest benchmarks in the world, flanked by stocks in the Ukraine, Lebanon, Nigeria and Russia.
“Global funds are flowing back to Hong Kong," said Paul Pong, managing director at Pegasus Fund Managers. “Mainland funds are actively buying," and favoring H-shares trading at a discount to Chinese peers, while a rosier earnings outlook is also attracting investors, he said.
Chinese funds located in Hong Kong bought H shares on Wednesday after the Chinese government halted outbound mergers and acquisitions, the Hong Kong Economic Journal reported, citing people it didn’t identify at a Chinese investment bank.
While the Hang Seng China AH Premium Index fell for a fifth day on Thursday to approach a four-month low, it still shows that there’s a premium of 20% on mainland dual-listed shares over their Hong Kong counterpart.
“Mainland institutional funds are buying shares actively in Hong Kong, in particular undervalued large-caps among H shares, such as property and financial stocks,” said Hayman Chiu, an analyst at Cinda International in Hong Kong. “The prospect of a weaker yuan is pushing mainland funds to diversify their investments to non-renminbi assets.”
Trump letter
President Trump sent a letter to his Chinese counterpart Xi Jinping saying he looks forward to building solid ties between the world’s two biggest economies. The letter is the first direct communication from Trump to Xi since he moved into the White House on January 20. Trump still hasn’t set up a call with Xi since then despite speaking on the phone with more than a dozen world leaders.
A measure of mainland and Hong Kong banks rose to the highest level since August 2015, led by China Merchants Bank and China Minsheng. A gauge tracking Chinese automakers in Hong Kong rose Thursday to the highest level since April 2015, after analysts this week forecast better earnings prospects for car stocks and property developers.
Hong Kong Exchanges & Clearing extended its advance after rallying the most in 5 months on Wednesday and brokerage firms built on gains on speculation that a bond connect program with the mainland will be announced and China index futures restrictions will be eased.
China will hold a regular annual meeting on securities and futures supervision on Friday and Saturday in Beijing, according to people familiar with the matter.
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