Source: Broker China
Author: Shi Qian

The Hong Kong stock market is feeling the impact of big money!

In the last two trading days, without the support of capital going south, the Hong Kong market still experienced a sharp rise. The volume of the two trading days exceeded HK$1.1 trillion. In this process, it can be seen in particular that industry leaders such as Tencent, Meituan, Shangtang, and NIO performed well.

So, who is actually sweeping Hong Kong stocks? Are these funds long-term capital or speculative capital? Why are they entering the market to sweep the goods at this time? The current financial and emotional aspects seem to be in a complicated state.

Information from the periphery shows that currently, large international asset management companies are the most active, while emerging market experts and regional management companies are still on the sidelines. Some long-term investors continue to buy Chinese stocks. At the same time, hedge funds and mutual funds are still very low in terms of investment in China. The share of Asian ultra-high net worth customers selling on structured notes in the past two weeks is also greater than buying on dips. Furthermore, according to other sources, the outstanding performance of the Chinese stock market stems in part from the current popular “do more artificial intelligence, more Japan, and short China” strategy.

Who is buying Hong Kong stocks?

The past two weeks have been a “long face” period for the Hong Kong stock market. The Hang Seng Index rose more than 13% to become the best-performing major index in the world, and it has technically entered a bull market. Prior to that, the Hong Kong stock market had evaporated by nearly $3 trillion due to global investors' concerns about the economic outlook and the major impact of geographical tension.

This rise has come as a surprise to many people. Of course, opportunities to make money are also often contained in such “accidents.” So, who is actually buying shares in the Hong Kong market?

Information from Goldman Sachs shows that in the past period, investors from New York have all discussed Hong Kong issues. Previously, investors were basically only concerned about investment opportunities in Japan and India in the Asia-Pacific region, but this time they are all focusing on investment opportunities in mainland China and Hong Kong, China. Questions include how to allocate it, the ratio of the allocation, the trend of the national team, the state of the economy, etc.

International investors are once again studying investment opportunities in the Hong Kong market, and some long-term investment funds continue to buy shares of Chinese companies. However, at the same time, hedge funds and mutual funds are still very low and not optimistic in terms of investment in China. They will continue to observe relevant data; if the market continues to be active, the Hong Kong stock market will regain the attention of these funds.

The proportion of Asian ultra-high net worth customers selling on structured notes in the past two weeks is still greater than buying on dips. Customers still hope to use this wave of opportunities to reduce the ratio and risk of Chinese securities.

Recently, with Asian currencies being heavily sold off, Hong Kong's currency linked to the US dollar has proven to be a source of flexibility. The disorderly decline in the yen forced some funds to be transferred back to undervalued markets such as mainland China and Hong Kong, China. The Bank of America said in a report that the excellent phased performance of the Chinese stock market stems in part from the current popular “do more artificial intelligence, do more in Japan, and short China” strategy. In the process of monetary policy transformation between China and the US, Hong Kong stocks seem to be a hedging tool with low valuations, light positions, and low correlation. Furthermore, we can also observe that against the backdrop of the sharp rise in Hong Kong stocks yesterday, India's Mumbai SENSEX Index fell by nearly 1%, while the Japanese market also rose less than 1%.

In terms of buying, it is mainly concentrated among the components of the large-cap stock index. The biggest purchases were AIA, Meituan, and Tencent Holdings. Some analysts believe that some fund managers who cut their holdings earlier may be seeking to make up for China and quickly opened positions.

Why buy now?

So why is the capital choosing to buy Hong Kong stocks now?

The original reason was that in April, the Securities Regulatory Commission announced 5 cooperative measures with Hong Kong, including easing the scope of ETF products, incorporating REITs, supporting RMB trading counters, optimizing mutual recognition of funds, and unblocking listing financing channels. The new regulations will help unblock connectivity mechanisms, introduce active capital into the Hong Kong capital market, and enhance liquidity. Since then, the Hong Kong market has gradually become active.

Meanwhile, the yen entered a rapid downward channel. After March, although the Bank of Japan released expectations of interest rate hikes, the yen depreciated further. From April 9 to April 29, the dollar depreciated from a high of 151.5 to above 160.2 against the yen. This directly led to the recent return of foreign capital to Hong Kong.

China's economic recovery and policy improvements are also an important point in attracting foreign investment. Manufacturing activity grew the fastest in 14 months in April, according to a private survey released on Tuesday. The Caixin/S&P global manufacturing PMI rose from 51.1 in March to 51.4 in April, expanding for the sixth month in a row. Improved global demand led to a steady increase in new export orders. In particular, it is worth mentioning that the continued improvement of real estate policies is the main reason why foreign investors continue to buy.

Finally, there's appeal. Prior to this rise, the valuation of the Hong Kong stock market had reached the lowest level in the world's major markets. The valuation of the Hang Seng Index was only 8 times higher, while the major indices in the US stock market were more than 25 times higher, and the Japanese market was more than 20 times higher. The Hang Seng Index is also only less than 20% higher than when it was handed over in 1997. It can be said that the mood has reached an extreme low. Some brokerage analysts said that high-quality Hong Kong stock companies, especially Hong Kong stock internet companies, have lower valuations, lighter assets, and faster profit growth. These characteristics complement not only domestic investors, but also a very important source of income for overseas investors.

Of course, the current surge is more implicit in some technical factors: as Hong Kong stocks are undervalued and cheap, this kind of market surge usually triggers “fear of missing out (FOMO).” The probability of market sustainability still requires fundamental cooperation. Only if China's economy continues to improve will international capital reverse pessimistic expectations, thereby putting the market on a healthy track.

Editor/jayden