It’s estimated that around US$83.8 billion of capital flowed into emerging markets last year. That has ended the net capital outflow from these markets in the previous four years. The Hong Kong market was one of the major recipients of such funds.
Meanwhile, southbound trading under the Stock Connect scheme has generated a net capital inflow of nearly 700 billion yuan (US$110.46 billion) into the Hong Kong market since 2015.
In 2017 alone, Hong Kong saw a net inflow of over 340 billion yuan from the Stock Connect channel.
Many mainland fund managers have launched Stock-Connect funds in order to provide mainland investors access to the Hong Kong market.
Southbound trading accounts for less than 10 percent of the total market turnover in Hong Kong; that share is bound to increase over time.
The low valuation of Hong Kong equities is expected to continue to lure investors. Among developed economies, Hong Kong has one of the cheapest markets.
Moreover, China’s supply-side reform has yielded solid results, and that would lift the earnings of Chinese companies listed on the local bourse.
Such reforms, along with efforts to clamp down on stock price manipulation, are enhancing the attractiveness of Hong Kong equities.
Meanwhile, plans to accept tech companies with dual-class shareholding structure and biotech firms with no profit track record will draw more new economy firms to the city, thus enhancing the market’s breadth and depth.
There are dark clouds on the horizon, however. Risk factors, such as spiking US Treasury yields and the possibility of a global trade war, may put pressure on the market and increase volatility.
But short-term swings are not going to alter the long-term uptrend.
In view of China’s policy focus on poverty alleviation and livelihood improvement, investors may want to consider stocks in the consumption, education and healthcare sectors.
Clean energy, electric-car and technology plays are also likely to outperform.
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