The Hong Kong market’s recent gains were powered by a sudden influx of money from China, as some entities which built up reserves for potential overseas M&A deals decided to channel the funds into equity investments on the stock market instead, according to the Hong Kong Economic Journal.
Following a brief decline triggered by news of further slide in China’s forex reserves, the benchmark Hang Seng index closed with a gain of 153 points on Wednesday, with market turnover hitting nearly HK$90 billion.
HKEJ quoted an investment banker at a Chinese financial institution as saying that Hong Kong equities have been getting a boost due to increased inflow of capital from the mainland.
According to the banker, a number of Chinese private firms and state-owned enterprises had parked money in Hong Kong since the end of last year in a bid to seize potential mergers and acquisitions opportunities in overseas companies.
But the M&A plans came to a halt following a directive from the State Administration of Foreign Exchange, China’s forex regulator, the banker says.
Following the new policy, companies, after getting approvals from their parent firms and Chinese authorities, were said to have been redeploying the capital into Hong Kong equities, primarily blue chips and H-shares.
Their shopping targets include the auto sector, mainland property plays, Chinese banks and insurance firms, as well as blue chips like Hong Kong Exchanges & Clearing (00388), HSBC (00005.HK) and Tencent (00700.HK), the banker notes.
However, small caps and derivatives are said to be off limits, and frequent trading is also not encouraged. Investments from these funds are expected to continue in the market for a while.
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