Fund inflows from China have been a key driver of the recent rally in Hong Kong equities. But such southbound funds seem to be drying up for the time being.
The tightening trend of China’s monetary policy and potential introduction of new regulatory requirements are said to be some of the reasons behind the slowdown.
Concerns about an imminent rate hike in the US may also have discouraged Chinese funds from investing in the Hong Kong market, where the benchmark Hang Send Index failed to stay above 24,000 points after a strong rally last month.
I believe mainland investors in Hong Kong shares is a long-term trend that won’t easily end given the lower valuation of Hong Kong equities
A 30 percent discount to A shares is usually regarded as some sort of buying target for numerous Chinese investors.
Regarding China domestic shares, comments by a number of senior officials may shed some light on its future development.
Guo Shuqing, the newly appointed banking regulator, said while leverage in the mortgage market is not too high, rapid mortgage growth is a concern.
To prevent wild swings in housing prices, he said the China Banking Regulatory Commission will restrict lending funds it suspects are being used for property speculation.
It seems that the authorities may tighten financing for property developers.
Meanwhile, China Securities Regulatory Commission chairman Liu Shiyu said Sunday that the effect of suspending share sales amid a market downturn has proven “not good”.
Using pearl necklace as a metaphor, Liu said if the stock market is a pearl necklace, the quality of pearls determine the value of a pearl necklace.
We can infer from his comment that the securities watchdog may try to boost the market and attract more investors by improving the quality of listed firms.
The CSRC may also accelerate its IPO approval process and allow more companies to go public as long as they are up to standard.
This article appeared in the Hong Kong Economic Journal on Mar. 3
Translation by Julie Zhu
[Chinese version 中文版]
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