Hong Kong market has done well recently, and it’s widely believed that funds from China have played a key role.
To get some insights, I talked to a number of mainland fund managers, questioning them about the reasons why they are pouring more money into Hong Kong equities.
Well, here’s what I heard from them.
First of all, Hong Kong equities are considered good value.
Quite a few mainland fund managers find Hong Kong’s 13 times price-earnings ratio and dividend yield of over 3.5 percent attractive, in particular compared to Chinese domestic stocks.
As of mid-February, AH premium index remains above 118 despite sharp gains of Hong Kong markets so far this year.
That means mainland-traded A shares have an average price premium of nearly 20 percent over their H share counterparts in Hong Kong. And the price premium could reach over 40 percent, if one were to exclude banks, insurance, food and beverage sectors.
In fact, Hong Kong market is one of the most undervalued markets worldwide.
While the return on equity of Hong Kong market has fairly high rankings in global bourses, the market PE is still at a very low level.
Given this situation, many mainland fund mangers believe the Hong Kong market has further upside and good potential to outperform mainland shares.
Meanwhile, the Shenzhen-Hong Kong stock link has further improved access of Hong Kong market for mainland investors, and has also made it easier for them to make long-term investments.
Mainland investors are currently very eager to ramp up their overseas asset positions, and Hong Kong will be one of their top choices.
At the moment, mainland investors, particularly the big players, tend to focus on bluechips. In terms of sectors, finance, consumption, materials, industrials and technology are their preferred targets.
Over time, the interest may spread to small and mid-caps with good growth potential.
That said, share price manipulation in this segment is a problem that may keep them cautious and highly selective, which they should be.
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