Budapest Post

Cum Deo pro Patria et Libertate
Budapest, Europe and world news

Southbound flows rescuing Hong Kong equity market

Southbound flows rescuing Hong Kong equity market

China seems to be coming to the rescue as social unrest affects the city’s financial market, but it’s probably only for arbitrage reasons
Although 2019 has been an annus horribilis for Hong Kong, Chinese investors have actually increased their inflows toward the Hang Seng Index. In particular, Hong Kong has experienced the longest consecutive period of net southbound inflows into the equity market from the Shanghai and Shenzhen stock markets (37 days until September 11). Such behavior may look strange, which explains why some analysts have been wondering whether such a move was engineered by the central government as a way to cushion the negative impact of Hong Kong’s social unrest on the city’s financial market. The first thing to note is that Chinese investors have become much more relevant for Hong Kong equities since the Stock Connect was first launched in 2015, with a surging share in cash equity transactions from 13% in 2014 to 28% in 2018 among foreign investors. The positive inflows during the past few weeks, notwithstanding the doom and gloom about Hong Kong, can be associated to the expectation of a weaker yuan and cheaper valuations. On the former, Hong Kong is obviously the easiest channel for mainland Chinese investors to diversify into other currencies, which is not only because of the easy access to the Stock Connect but also to the Hong Kong dollar’s tight peg to the US dollar. In addition, cheaper valuations in Hong Kong clearly help, especially if the underlying of the purchased shares are the same in Hong Kong and mainland China. This is the case of the dual-listed firms, whose shares listed in Hong Kong (H-shares) have become much cheaper than those of mainland China (A shares). In fact, the premium between A shares and H shares has surged to around 30%. Cheaper valuations, more than any kind of general support to Hong Kong’s fledging financial markets, seem to be behind Chinese investors’ move, at least from the perspective that their allocation in Hong Kong equities has been disproportionally concentrated in dual-listed shares. In particular, since the yuan depreciated abruptly on August 5, trespassing 7 to the US dollar, 51% of total inflows through the Stock Connect went to dual-listed shares. This is a massive over-allocation into dual-listed shares as they only account for 23% of Hong Kong’s total equity market. In essence, Chinese investors have increased their interest in Hong Kong’s stocks at a very difficult time in the city, but the reason seems to be an arbitrage opportunity more than any other more general reasons. Going forward, unless Hong Kong’s economic situation suddenly surprises on the positive side or expectations on the yuan move to an appreciation against the US dollar, both very unlikely, we should expect dual-listed shares in Hong Kong to perform better than pure domestic ones. Finally, our conclusion on the arbitrage reasons behind Chinese investors’ interest in Hong Kong is not fully incompatible with the hypothesis of a more general support for the Hang Seng Index. However, it does show the initial interest has gone to the most obvious part of the market, in terms of arbitrage opportunities, namely the dually listed shares.
AI Disclaimer: An advanced artificial intelligence (AI) system generated the content of this page on its own. This innovative technology conducts extensive research from a variety of reliable sources, performs rigorous fact-checking and verification, cleans up and balances biased or manipulated content, and presents a minimal factual summary that is just enough yet essential for you to function as an informed and educated citizen. Please keep in mind, however, that this system is an evolving technology, and as a result, the article may contain accidental inaccuracies or errors. We urge you to help us improve our site by reporting any inaccuracies you find using the "Contact Us" link at the bottom of this page. Your helpful feedback helps us improve our system and deliver more precise content. When you find an article of interest here, please look for the full and extensive coverage of this topic in traditional news sources, as they are written by professional journalists that we try to support, not replace. We appreciate your understanding and assistance.
Newsletter

Related Articles

0:00
0:00
Close
U.S. and Hungarian Officials Talk About Economic Collaboration and Sanctions Strategy
Technology Giants Activate Lobbying Campaigns Against Strict EU Regulations
Pope Francis Admitted to Hospital in Rome Amid Increasing Speculation on Succession
Zelensky Calls on World Leaders to Back Peace as Tensions Rise with Trump
UK Leader Keir Starmer Calls for US Security Guarantee in Ukraine Peace Deal
NATO Chief Urges Higher Defense Expenditure in Europe
The negotiation teams of Trump and Putin meet directly, establishing the groundwork for a significant advancement.
Rubio Touches Down in Riyadh Before Key U.S.-Russia Discussions
Students in Serbian universities Unite to Hold Coordinated Protests for Accountability.
US State Department Removes Taiwan Independence Statement from Website
Abolishing opposition won't protect Germany from Nazism—this is precisely what led Germany to become Nazi!
Transatlantic Gold Rush: Traders Shift Bullion in Response to Tariff Anxieties and Market Instability
Bill Ackman Backs Uber as the Company Shifts Towards Profitability
AI Titans Challenge Nvidia's Supremacy in Light of New Chip Innovations
US and Russian Officials to Meet in Saudi Arabia Over Ending Ukraine Conflict. Ukraine and European leaders – who profit from this war – excluded from the negotiations.
Macron Calls for Urgent Summit as Ukraine Conflict Business Model is Threatened
Trump’s Defense Secretary: Ukraine Won’t Join NATO or Regain Lost Territories
Zelensky Urges Europe to Bolster Its Military in Light of Uncertain US Backing
Chinese Zoo Confesses to Dyeing Donkeys to Look Like Zebras
Elon Musk is Sherlock Holmes - Movie Trailer Parody featuring Donald Trump's Detective
Trump's Greenland Suggestion Sparks Sovereignty Discussions Amid Historical Grievances
OpenAI Board Dismisses Elon Musk's Offer to Acquire the Company.
USAID Uncovered: American Taxpayer Funds Leveraged to Erode Democracy in Europe Until Trump Put a Stop to It.
JD Vance and Scholz Did Not Come Together at the Munich Security Conference.
EU Official Participates in Discussions in Washington Amid Trade Strains
Qatar Contemplates Reducing French Investments Due to PSG Chief Investigation
Germany's Green Agenda Encounters Ambiguity Before Elections
Trump Did Not Notify Germany's Scholz About His Ukraine Peace Proposal.
Munich Car Attack Escalates Migration Discourse Before German Elections
NATO Allies Split on Trump's Proposal for 5% Defense Spending Increase
European Parliament Advocates for Encrypted Messaging to Ensure Secure Communications
Trump's Defense Spending Goal Creates Division Among NATO Partners
French Prime Minister Bayrou Navigates a Challenging Path Amid Budget Preservation and Immigration Discourse
Steering Through the Updated Hierarchy at the European Commission
Parliamentarian Calls for Preservation of AI Liability Directive
Mark Rutte Calls on NATO Allies to Increase Defence Expenditures
Dresden Marks the 80th Anniversary of the World War II Bombing.
Global Community Pledges to Aid Syria's Political Transition
EU Allocates €200 Billion for AI Investments, Introduces €20 Billion Fund for Gigafactories
EU Recognizes Its Inability to Close the USAID Funding Shortfall Due to Stalled US Aid
Commission President von der Leyen Missing from Notre Dame Reopening Due to Last-Minute Cancellation
EU Officializes Disinformation Code for Online Platforms, Omitting X
EU Fails to Fully Implement Key Cybersecurity Directives
EU Under Fire for Simplification Discussions Regarding Corporate Sustainability Reporting
Shein Encountering Further Information Request from the EU During Ongoing Investigation
European Commission Initiates Investigation into Shein as It Aims at Chinese E-Commerce Regulations
German Officials Respond to U.S. Proposal for Peace Talks with Russia
Senate Approves Robert F. Kennedy Jr. as Secretary of Health and Human Services.
Trump and Putin Engage in Discussions on Ukraine Peace Negotiations Amid Worldwide Responses
Honda and Nissan End Merger Talks
×