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Monday, September 19, 2016, 17:03

Mainland investors lead buying spree

By Lin Wenjie
Mainland investors lead buying spree
Driven by cheaper valuations of Hong Kong stocks and an appetite to diversify from the depreciating yuan, bargain hunters from the Chinese mainland continued last Thursday’s rally in the local equity market. (Lam Yik Fei / Bloomberg)

Chinese mainland investors extended a buying spree on Monday as they returned from the Mid-Autumn Festival break, with H shares leading the advance.

Bargain hunters continued last Thursday’s rally, which followed heavy losses earlier in the week, boosted by hopes of a delayed rise in US interest and ahead of policy-fixing meetings of central banks in the United States and Japan later this week.

The benchmark Hang Seng Index (HSI) rallied 214 points, or 0.9 percent, to close at 23,550 points on Monday, while the Hang Seng China Enterprises Index jumped 152 points, or 1.6 percent, to 9,747 points, as mainland financial companies and local property developers fared well.

Turnover was up significantly at HK$72.5 billion, with more than 50 percent of the daily quota — about 5.51 billion yuan ($826 million) — under the Shanghai-Hong Kong Stock Connect used up by mainland investors who were looking to grab Hong Kong stocks with cheaper valuations and to diversify from the depreciating yuan.

Managing Director Banny Lam Chiu-kei at CEB International Investment Corp noted that investor expectations of a delayed US interest-rate hike contributed to Monday’s rally.

“The market believed that the US Federal Reserve will not raise interest rates at this week’s meeting, which is good news for local developers, so we saw growth in their stock prices,” he said.

“On the other hand, the HSI had plunged 3.2 percent last week, leading to cheaper valuations of many high quality stocks. As many investors tend to believe the HSI will rebound to the 24,000-point level, H share companies and blue chips are among the favorites of mainland investors as they are all big companies with sound fundamentals,” Lam added.

He projected that up to half of the southbound quota under the Shanghai stocks trading link will continue to be used up daily over the next few days.

The renminbi depreciation also propelled mainland investors to buy Hong Kong stocks to hedge against the yuan’s volatility. “Anticipating further devaluation pressure on renminbi, investors might think it’s safer to put renminbi in H shares to keep value,” said Lam.

The strong devaluation pressure on the renminbi has led to the cost of borrowing yuan surging to an eight-month high in the offshore market.

The overnight CNH-Hong Kong Interbank Offer Rate (CNH Hibor) — a daily benchmark for offshore renminbi interbank lending — advanced 1,573 basis points to 23.68 percent on Monday, according to data from the Treasury Markets Association.

Lam said the surge in Hibor could be a temporary phenomenon as September is the settlement month for many offshore mainland companies, which are in need of huge sums of renminbi, thus posing a challenge to the market’s capital adequacy by borrowing from banks.

“Despite the sharp increase in Hibor, the market remains rational because I don’t see any unusual signs of trade or settlement in the offshore market,” said Ying Jian, a senior analyst at Bank of China Hong Kong.

“On the other hand, the exchange rate of offshore renminbi rebounded from last Wednesday, causing the onshore yuan to be stronger. The yuan’s fixing rate was set at 6.6786 on Monday, 109 points higher than the previous trading day.”

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