(Nov 24): Mainland Chinese investors turned net sellers of Hong Kong stocks through the city’s bourse link for the first time today, after taking up just 6.1 percent of daily buying quotas in the program’s first week.
The balance for the daily limit on Hong Kong equity-buying through the link rose above 10.5 billion yuan ($1.7 billion) from 9:33 a.m. to 9:58 a.m. local time, signaling more investors were selling shares than placing buy orders, according to exchange data compiled by Bloomberg. About 36 percent of the daily allowance for Shanghai purchases was used up at 11:27 a.m. The Hang Seng China Enterprises Index soared 3.6 percent in Hong Kong, outpacing a 1.9 percent gain by Shanghai’s benchmark gauge, after China unexpectedly cut interest rates.
“Mainland investors are taking profit,” said Alex Wong, Hong Kong-based asset-management director at Ample Capital Ltd., which oversees about $150 million. “The difference is in investor behavior. In Shanghai people tend to exit on highs after policy announcements, whereas in Hong Kong people are not short term.”
The quota used by Chinese investors in Hong Kong has dwindled every day since the link’s Nov. 17 debut. Some mainland investors don’t have approvals needed to invest offshore, there aren’t many arbitrage opportunities for them to exploit and small-cap stocks, which they favor, weren’t included in the program, Charles Li, Hong Kong Exchanges & Clearing Ltd.’s chief executive officer, wrote on his blog over the weekend as he cited reasons for the slow start.
‘Bit Disappointed’
“We all shared in the collective enthusiasm prior to launch, so when we see the volume drop we’re obviously a bit disappointed,” he wrote. “This is a long-term scheme and we shouldn’t get too hung up on the initial numbers.”
China is counting on the bourse link to help open up its capital account, boost local equity valuations and increase global use of the yuan. For Hong Kong, the program is part of the city’s effort to cement its status as a financial gateway to the biggest emerging market.
International investors sought to buy the maximum 13 billion yuan of Shanghai-listed shares permitted to them on the connect’s opening day. After that, flows dwindled as concerns about execution risks and ownership of purchased assets deterred fund managers, according to Nick Ronalds, the managing director for equities at the Asia Securities Industry & Financial Markets Association, a trade association for the biggest investors and brokers. Daily quota usage in Shanghai has outweighed that in Hong Kong by at least six times since the link began.
Active Trading
Haitong Securities Co., Bosideng International Holdings Ltd. and Tencent Holdings Ltd. were among most actively traded Hong Kong stocks through the program last week, according to data from HKEx. While buy orders from mainland investors picked up today, reversing the earlier net sell position, just 0.5 percent of the daily limit had been taken as of 11:28 a.m. in the city.
Stocks advanced on the mainland and in Hong Kong after China’s surprise interest-rate cut last week. Policymakers reduced the one-year lending rate by 0.4 percentage point to 5.6 percent, while lowering the one-year deposit rate by 0.25 percentage point to 2.75 percent.