SHANGHAI/HONG KONG (Reuters) - Chinese investors, for the first time, used the entire 10.5 billion yuan ($1.7 billion) daily quota .SQUOTA.HS in a cross-border program buying Hong Kong stocks, boosting turnover under the Shanghai-Hong Kong Stock Connect to a record.
The buying boosted the Hang Seng Index .HSI 3.8 percent to its highest level in nearly seven years. The Hang Seng China Enterprises Index .HCSE of Hong Kong-listed mainland companies was up 5.8 percent for the day, hitting a four-year high.
Hong Kong stock exchange Chairman Chow Chung Kong told a news conference that total turnover under the stock connect scheme reached a record high of 29.9 billion yuan on Wednesday. Total market turnover in Hong Kong also hit a record high of HK$252.4 billion, surpassing the 2007 level.
“Market capitalization in total for all the listed companies in Hong Kong today reached HK$28.6 trillion...making us the highest market capitalization exchange in the world.”
The milestones follow signs of rapidly rising interest in Hong Kong stocks from mainland investors, after months of tepid interest that caused the southbound leg of the stock connector to go largely unused.
“We are in the midst of a profound structural change: the gradual but accelerating opening of mainland China’s financial markets,” said HKEX chief executive Charles Li, who was quoted in a press release commenting on the day’s performance.
“Our securities market provides a good investment outlet for mainland funds and is an excellent way for mainland investors to diversify their portfolios.”
Chinese fund managers, however, said they are moving money more to seek arbitrage profits from the massive valuation gap between Hong Kong and Shanghai shares in the same companies, with Hong Kong shares trading at discounts between 30 to 90 percent to their mainland peers.
Chen Zhizhong, a Shenzhen-based analyst at China Merchant Securities, said that the recent three-day weekend was full of discussion in the analyst community about whether the time was right to move into Hong Kong.
The consensus answer, apparently, was yes.
“The party has begun, and you can feel the excitement today,” Chen said. “It’s hard to say when the music will stop.”
The premium .HSCAHPI China shares have over their Hong Kong-listed peers has fallen sharply over the past week on signs of increasing demand for Hong Kong shares.
Analysts say part of the reason for the increased southbound flows is that Chinese regulators last week allowed mutual funds to buy Hong Kong shares under the connect program, seen as making it easier to get around previous barriers to southbound flows, including high capital thresholds and lengthy application requirements.
($1 = 6.2059 Chinese yuan)
Reporting by Samuel Shen and Pete Sweeney in SHANGHAI and Michelle Price and Deena Yow in HONG KONG; Editing by Kim Coghill, Richard Borsuk and Jacqueline Wong