November 10, 2017 / 4:42 AM / 2 years ago

As Hang Seng hits decade highs, Chinese step up buying Hong Kong stocks

SHANGHAI (Reuters) - With Hong Kong stocks hitting fresh decade-highs this week, money inflows from China are accelerating as mainland investors, afraid of missing out on a spectacular bull run, pile in.

FILE PHOTO: An investor monitors share prices inside a brokerage firm during morning trading in Hong Kong, China July 8, 2015. REUTERS/Tyrone Siu

Increased buying from China could further fuel a market that has already posted an eye-popping 30 percent rise this year, while giving mainland investors more weight in a bourse once dominated by Western institutions.

“Every day, fresh Chinese money is flowing into stocks such as Chinese lenders and developers ... and the money stays there,” said Stanley Chan, head of research at Emperor Securities Ltd.

“Pricing power by mainland money is increasing.”

Chinese investment in Hong Kong has grown steadily since Beijing launched the first cross-border stock “connect” scheme three years ago, with cumulative net inflows under the scheme reaching roughly 560 billion yuan ($84.35 billion) by the end of October.

Renewed upward momentum this week propelled the benchmark Hang Seng Index to its highest level in 10 years, and mainland investors accelerated their buying.

By the closing bell on Thursday, net purchases by Chinese buyers this week approached 9 billion yuan ($1.36 billion) under the Shanghai-Hong Kong Stock Connect - almost double last week’s amount and well above the previous weekly average.

Chinese money is also gushing into the former British colony’s bourse via the Shenzhen-Hong Kong Stock Connect, another cross-border channel.

And Chinese investment funds are rushing to launch Hong Kong-focused products to tap rising retail interest.

In just three days last week, Harvest Fund Management Co. raised $1 billion for a stock fund that will allocate up to half of its equity holdings in Hong Kong, hitting sales target well ahead of schedule.

Meanwhile, roughly 80 new products with “Hong Kong” in the name - which, by rule, means they must invest at least 80 percent of their assets there - are awaiting regulatory approval, potentially doubling the number of Hong Kong-focused mutual funds in China.

“Chinese asset managers are increasingly buying Hong Kong stocks ... whose valuation is still low by global standards,” said Ma Xixun, executive director at PinPoint, which is launching a global hedge fund that will target Chinese companies listed in Hong Kong and elsewhere.

Exchange data shows Chinese investment is focused on mainland financials such as Ping An and Bank of China, and developers such as Sunac and China Evergrande. Buying is also intensive in industry-leaders inaccessible in China, such as Tencent, and Geely Automobile.

Retail investor Ding Ou, who is studying ways to buy Hong Kong stocks, said not owning shares of Tencent is one of his “biggest regrets”. The Hong Kong-listed tech giant behind popular apps in China such as Wechat and QQ has seen its share price double this year.

Reporting by Samuel Shen and John Ruwitch; Editing by Sam Holmes

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