Even mainland traders are dumping China mega caps

[HONG KONG] While technology stocks around the globe got hit this week, shares of Hong Kong companies already had taken a pounding in part because a key constituency - mainland Chinese investors - has walked away from the market.

For the first time since 2018, shareholders from China were net sellers of Hong Kong stocks in the second half last year, according to Bloomberg calculations based on exchange data.

Tech was among the hardest hit during the period, led by Tencent and Meituan, the data show. For the first time ever, the 2 are among the least favourite stocks of Chinese investors.

Chinese investors accelerated their selling of Hong Kong stocks when Beijing stepped up its crackdown on the tech sector and the economy slowed further.

Although Hong Kong stocks trade below book value and tech shares are 30 per cent cheaper than their mainland peers, few traders are willing to call a bottom given the absence of a big group of would-be buyers. That's likely to keep casting a shadow over US-listed tech stocks from both the mainland and Hong Kong.

"Because policy uncertainties are still there, it's smartest to save ammunition and have in place strict risk control," said Cai Dian, a fund manager at Beijing Eastern Smart Rock asset management, who said he'll only maximise his position in Hong Kong shares if the market falls another 50 per cent.

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The Hang Seng Tech Index has tumbled more than 50 per cent from its February peak last year, though gained as much as 1.7 per cent on Friday (Jan 7). Meanwhile, the tech-heavy Nasdaq 100 Index has dropped only about 5 per cent from its November record, even after Wednesday's 3.1 per cent decline.

The US sell-off eased on Thursday, with the Nasdaq 100 slipping 0.4 per cent at 10 am in New York. Meanwhile, the Nasdaq Golden Dragon China Index ticked higher after the recent rout, led by gains in Alibaba Group and Tencent.

As mainland investors swung from buyers in the first half to sellers in the second, they dumped their old favourite Internet giant stocks.

Tencent, for example, saw net selling of 19 billion yuan (S$4 billion) in the second half, turning from the most-favoured stock into the least-favoured. The online game giant was their most purchased stock in 2020.

Kuaishou Technology, which just joined the trading link in September that allows mainland investors to buy Hong Kong shares, was the only tech stock that was on the top of Chinese investors' buying list in the second half, the data show.

The other new favourites include China Resources Power and Geely Automobile.

The selling has spilled over to the US, which attracted many Chinese listings before regulatory crackdowns in both countries. American depositary receipts of online firm Bilibili have slumped 64 per cent in the past year as of Wednesday's close, while Alibaba Group is down 47 per cent.

A silver lining is the potential for more listings from US-traded technology stocks in Hong Kong. Revised rules in the city this year may enable more firms to join the trading links eventually, helping to lure more Chinese buyers back. But the outlook remains challenging.

"You hear people saying it's time to call a bottom to buy Hong Kong because it is cheap, but for me, that's not a convincing enough reason," said Peng Linxia, chief investment officer at Golden Glede Fund Management Zhuhai Hengxin Co.

BLOOMBERG