Chinese investors are turning to Hong Kong stocks amid a weakening yuan, which fell last week to its lowest levels against the dollar since 2010.
The investment flows underline concerns that the slide in the Chinese currency could increasingly fuel capital outflows from the country, although official data suggests speculative capital flight is under control for now, Reuters reports.
“You buy Hong Kong shares for two reasons: they’re cheap and you can dodge yuan depreciation,” Liu Haiying, chairman of Haiying (Shanghai) Investment Consulting Co., was quoted as saying.
Shares priced in Hong Kong dollars provide a hedge against a falling yuan – so long as the shares at least hold their value – because the Hong Kong currency is pegged to the US dollar, the news agency said.
The investment flows into Hong Kong resulted in record increases in assets under management in June for some Chinese funds that are permitted to manage outbound investment in the country’s tightly regulated markets.
Money has also flowed into the territory via the Shanghai-Hong Kong Stock Connect scheme at the fastest rate since early last year when investors bet a rally in Chinese shares would spill over to Hong Kong.
The flows picked up sharply from May as a rising trend in the yuan against the US dollar turned into a decline.
By Wednesday, the Chinese currency had fallen to 6.6980 per dollar, its lowest level against the dollar since 2010.
Any significant yuan decline puts investors on edge after the central bank sent shock waves through global markets last year by devaluing the currency and sparking a rush of capital flight by Chinese.
“Capital outflows have been continuing at pace and they are a lot larger than what the authorities would have us believe through the official data,” said Sue Trinh, Hong Kong-based Asia currency strategist at Royal Bank of Canada.
She expects the yuan to slide to 6.95 per dollar by the end of 2015 for a record full-year decline of 6.6 percent.
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