22 August 2019
Mainland investors are interested in the smaller Hong Kong-listed companies. Photo: Reuters
Mainland investors are interested in the smaller Hong Kong-listed companies. Photo: Reuters

HK appetite for stocks bigger than mainland’s

Hong Kong is a small island, but it has a big appetite for stocks.

By contrast, although mainland China is huge, it seems to like smaller stocks.

These are a couple of observations from the landmark debut Monday of Shanghai-Hong Kong Stock Connect, which ended the day on a somewhat disappointing note.

Investors in Hong Kong quickly snapped up their 13 billion yuan quota of Shanghai shares, but investors on the mainland bought only one-sixth of their 10.5 billion yuan quota of Hong Kong stocks.

Forgive the tipsters who predicted mainland investors would pour capital into Hong Kong. It was probably wishful thinking from those working in IFC or ICC who don’t understand the investing pattern of the growing middle class in Shanghai.

The cruel fact is: Shanghainese don’t like Hongkongers — or our companies — that much.

That was reflected in the Hong Kong-listed stocks they bought on the first day: Tencent (of course), Phoenix TV and Semiconductor Manufacturing International Corp. (SMIC) – media and technology brands well known among the Shanghainese.

Phoenix, which is hardly a favorite among the four dozen active brokerage houses in Hong Kong, judging from its tiny turnover in the past month, is the smallest among the three counters, with a market capitalization of HK$15 billion, as compared with SMIC’s HK$30 billion and Tencent’s HK$1.2 trillion.

On the other hand, Hong Kong investors’ top three buys on the Shanghai market were Kweichow Moutai, SAIC Motor and dairy giant Yili Group, all big-cap stocks. No word on why investors had a special thirst for the beverage makers, although moutai and milk probably appeal to different consumers.

One explanation for the different tastes across the border might be that mainland investors have been constrained by a 10 percent daily price limit in trading their domestic market and are now going for smaller stocks with potentially higher volatility.

By contrast, Hong Kong investors look for value and would rather invest in the bigger stocks listed in Shanghai, a market they have never understood very well.

Whoever, in particular C.Y. Leung and his financial officers, thought Stock Connect was a gift from Beijing might like to think again.

As it turned out, the long-anticipated through train carried its cargo of capital predominantly northbound rather than southbound, leading one to wonder if it is in fact a gift from Hong Kong to the mainland.

Hong Kong Exchanges and Clearing chief executive Charles Li Xiaojia said it will take time for mainland investors to get to know the Hong Kong market, noting that it is the first time in 20 years that they can trade in overseas stocks from their home base.

“It is too early to conclude Shanghai-Hong Kong Stock Connect works better for the mainland than Hong Kong,” Li said. “Let’s learn as Hongkongers to look at the big picture and be a little bullish.”

Well, if we follow Li’s logic, it may not be a bad idea for wealthy Hongkongers to divert their money to the mainland instead of using it to pump up another asset bubble in the city, right?

–Contact us at [email protected]


EJ Insight writer

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