[SHANGHAI] Chinese investment managers, taking advantage of a significant step to open up investment flows in and out of China, are aggressively marketing well-priced Hong Kong shares to mainland investors through stock connect schemes.
The reform, a complete lifting of aggregate investment quotas on both the newly announced Shenzhen-Hong Kong Connect scheme and the existing Shanghai-Hong Kong Connect, means mainland investors will be able for the first time to buy unlimited volumes of Hong Kong listed shares.
At least 23 Chinese mutual funds have already been established this year to buy Hong Kong shares via the Shanghai-Hong Kong Connect channel, according to Reuters calculations, a sharp rise from the seven such funds launched in 2015.
The Shenzhen-Hong Kong stock connect scheme is expected to go live by December.
Money managers say mainland investors can find bargains in Hong Kong compared to the inflated valuations on China's domestic exchanges.
This marketing pitch is bolstered by the recent recovery in the Hong Kong's Hang Seng index, which has gained 25 per cent from a bottom hit in February to stand up 4 per cent year-to-date, versus a 10 per cent fall in the onshore CSI300 index.
"Compared with US, Europe and emerging markets, Hong Kong stocks are in a low-lying land in terms of valuation," Shi Cheng, co-CIO at First Seafront Fund Management said in an on-line advertising presentation for a new fund which it says will let mainland investors join the "Hong Kong gold rush".
Orient Securities RuiHua Shanghai & Hong Kong Mixed Fund hit its fundraising target on its first day of sales, on July 28, raising 6.4 billion yuan (S$1.3 billion), the company said in a statement. The fund can invest up to 50 per cent of assets in Hong Kong stocks.
Invesco Great Wall Hong Kong & Shanghai Selected Fund said it achieved a 7.2 per cent return in July alone after it added Hong Kong shares to its holdings. China's benchmark CSI300 rose 1.6 per cent in July.
Among the fund's top 10 holdings, eight are Hong Kong-listed firms, with CK Hutchison Holdings Ltd weighted at 7.1 per cent and Tencent weighted at 4.9 per cent of assets, according to the fund's disclosure last month.
"Regarding the Hong Kong market, we think international investors are too pessimistic toward China, making stock prices there (in Hong Kong) very attractive," the fund manager wrote.
BAD NEWS IS GOOD NEWS
Onshore interest in Hong Kong shares coincides with a weakening trend in the Chinese economy and in the exchange rate which has driven some domestic investors to try to get out of yuan-denominated assets.
"Chinese demand for overseas investment is getting stronger and stronger," said Ivan Shi, head of research at fund consultancy Z-Ben Advisors, adding that many Chinese mutual funds have exhausted their overseas-investment quotas, so they must rely on the Connect schemes to get money out.
For ordinary Chinese investors using a mutual fund has significant advantages; there is no paperwork hassle and no minimum investment as there would be if they were to trade directly.