tw Mainland cash cushions plunge in HSI MKT

Top News | Agencies and Joyce Chen 6 Feb 2018

Agencies and Joyce Chen

Hong Kong stocks opened sharply lower but closed only 1.09 percent lower while A-shares even closed higher on Monday. US and Europe futures trading followed Asia's negativity.

U.S. stock index futures extended their losses last night on the back of global selloff, with futures for both the S&P 500 Index and Dow Jones Industrial Average dropped, signaling more losses to come. The Stoxx Europe 600 Index retreated for a sixth day in the longest losing streak since November.

Hang Seng Index Futures(Fed) slided 0.041 percent to 32,020 as of 9.26p.m last night.

Yesterday, Hang Seng Index dropped 356.56 points to 32,245.22, amid mounting speculation that global central banks would aggressively tighten policy.

The sub-index of the Hang Seng tracking energy shares dipped 2.5 percent while the IT sector dipped 2.11 percent, the financial sector was 0.64 percent lower and property sector dipped 1.83 percent.

Yet, the southbound quota of the Stock Connect linking Shanghai and Hong Kong was 71.9 percent used - the biggest percentage for a day since April 2015 - as investors bought banking and airline shares that also outperformed on the mainland market.

These investors contributed a net 10.2 billion yuan (HK$12.68 billion) purchase of the city's shares through exchange links with Shanghai and Shenzhen. That's the biggest inflow since Chinese authorities widened the investment channel in December 2016, according to data compiled by Bloomberg.

For mainland funds facing limited investment options thanks to capital controls, buying Chinese companies in Hong Kong is an easy trade. Dual-listed firms like Bank of China (3988) and China Shenhua Energy (1088) have long been priced at a discount to their Shanghai shares, while a surging yuan against the Hong Kong dollar is making them cheaper still.

"Southbound liquidity is supporting the market and they're concentrating on buying Chinese financial companies because of their discount," said Steven Leung, executive director at UOB Kay Hian (Hong Kong) Ltd. "There will be more and more diversification from pension and life insurance money investing overseas and Hong Kong is still the first place for them to consider."

Such inflows are translating into bigger returns, making the trade even more appealing. The Hang Seng gauge of Chinese stocks in Hong Kong has jumped 18 percent in the past two months, compared with a 5.6 percent advance by the Shanghai Composite Index. The fact that H shares are mostly large-cap state owned companies is also appealing to mainland funds as they avoid smaller companies facing higher funding costs thanks to a deleveraging campaign.

Meanwhile, shares of China Southern Airlines (1055), Asia's biggest carrier by passenger numbers, surged to their highest ever yesterday after the company predicted its passenger yields would improve this year amid a surge in travel demand across the continent.

Oil prices are a risk to that outlook for yields, Tan Wangeng said in an interview Monday.

The stock gained 4.9 percent to close at HK$10.70 in Hong Kong, the highest level since August 1997, when it first began trading, according to data compiled by Bloomberg.

Bank J. Safra Sarasin is not pessimistic about the stock market.

Its chief strategist Jan Amrit Poser said the equity market still have room to grow and is unlikely to default this year, adding that the third quarter would be a good time for some profit earnings.

Meanwhile, yuan closed 129 points lower yesterday, at 6.2927 against one US dollar.



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