Chinese investment in Hong Kong’s stock exchange has slowed down to a trickle after surging shortly before the mainland’s National Day celebrations at the start of this month.
Mainland investors spent more than US$8 billion on Hong Kong shares in September, the biggest monthly inflow since the Shanghai-Hong Kong Stock Connect began in 2014, Bloomberg reports.
But net buying in October slowed to just 7 percent of that amount, according to data compiled by the financial news provider.
Analysts say they are surprised by the sudden slowdown, although some attribute it to the narrowing price gap of dual-listed shares and the Federal Reserve’s looming rate increase.
The benchmark Hang Seng Index rose 12 percent in the three months to September, the biggest gain in seven years, the report said.
“It’s a bit of a mystery as to why this is happening,” Mohammed Apabhai, head of Asia trading strategy at Citigroup Inc., was quoted as saying.
“Nobody has put forward a convincing explanation about exactly why the southbound flow has dried up and whether it’s a temporary phenomenon. That has removed one of the supports from the Hong Kong equity market.”
China International Capital Corp Ltd. downgraded its rating on Hong Kong-listed mainland banks last week, citing the dwindling inflows.
Trades from Shanghai made up as much as 17 percent of the total turnover in Hong Kong at one point last month, the highest on record, according to Bloomberg data.
That ratio dropped to less than 7 percent on Oct. 20.
“This surprised a lot of people,” said Ronald Wan, chief executive of Partners Capital International Ltd. in Hong Kong.
“People thought a lot of funds will be channeled from the north. The flow will come back eventually if third quarter figures demonstrate genuine improvement in the Chinese economy and whether that converts to earnings as well.”
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