By Luoyan Liu and Andrew Galbraith
SHANGHAI (Reuters) – As China’s blue-chip index approaches an all-time excessive, rising fears about bubbles growing in some components of the nation’s inventory market are prodding some traders to hunt bargains in Hong Kong.
Retail traders have poured cash into shares by way of mutual funds, pushing valuations in sectors similar to client, healthcare and new vitality to multi-year and even document ranges.
As an example, the CSI new vitality index has climbed 15% to this point this yr, after greater than doubling in 2020, thanks partly to China’s carbon neutrality pledge.
(Graphic: China’s new vitality, healthcare and client shares lead good points because the nation’s blue–chip index nears a document excessive, https://fingfx.thomsonreuters.com/gfx/buzz/qzjvqmyxkvx/China’spercent20newpercent20energypercent20healthcarepercent20andpercent20consumerpercent20stockspercent20leadpercent20gainspercent20aspercent20thepercent20country’spercent20blue–chippercent20indexpercent20nearspercent20apercent20recordpercent20high.jpg) (Graphic: Valuations of China’s inventory market darlings surge, https://fingfx.thomsonreuters.com/gfx/buzz/yxmvjynzkpr/Valuationspercent20ofpercent20China’spercent20stockpercent20marketpercent20darlingspercent20surge.jpg)
“There are huge bubbles in client, well being care and liquor shares, with valuations of a few of these shares exceeding their earlier document highs,” mentioned Dong Baozhen, chairman of Beijing-based non-public securities fund Lingtong Shengtai Funding Administration.
“Their rally has nothing to do with fundamentals now and poses big dangers for traders,” he added.
Within the newest instance of retail frenzy, a Chinese language mutual fund attracted a document $37 billion value of investor subscriptions on the primary day of gross sales.
(Graphic: China’s mutual fund trade grows quickly, https://fingfx.thomsonreuters.com/gfx/buzz/nmopaowmqpa/China’spercent20mutualpercent20fundpercent20industrypercent20growspercent20rapidly.jpg)
The rise in inventory costs has been fuelled by international and home cash, as Chinese language authorities unleashed large stimulus to cope with the blow from the COVID-19 pandemic and the nation’s financial system recovered quicker than others.
As worries enhance over frothy valuations, some traders are turning to cheaper Chinese language shares listed in Hong Kong, significantly as U.S. exchanges delist these companies and American traders are pressured to dump their shares.
“The (U.S.) bans truly inform individuals what good belongings are in Hong Kong,” mentioned Xia Tian, managing director at Shanghai-based asset administration agency Minvest.
Investor shopping for by way of Inventory Join from the mainland to Hong Kong hit a document excessive of HK$26.6 billion ($3.43 billion) on Tuesday, and the full southbound purchases within the new yr hit HK$221.8 billion as of Thursday, in line with trade knowledge.
The Inventory Join scheme offers traders entry to each markets when investing in A-shares within the mainland and H-shares in Hong Kong.
Morgan Stanley reckons the strong flows into Hong Kong owe to mainland policymakers’ encouragement of outbound funding and an elevated premium of home A-shares over the Hong Kong-listed H-shares. Corporations’ A-shares listed in China are at the moment buying and selling at a greater than 30% premium over their Hong Kong-listed shares.
(Graphic: Mainland traders hunt for bargains in Hong Kong, https://fingfx.thomsonreuters.com/gfx/buzz/xlbvgylqevq/mainlandpercent20investorspercent20huntpercent20forpercent20bargainspercent20inpercent20Hongpercent20Kong.jpg)
The rally in China’s A-share market has additionally been pushed by international funding. As of Thursday, international traders had bought a complete of 48.7 billion yuan ($7.53 billion) value of A-shares by way of the Inventory Join this yr, which is already a fifth of what they purchased in 2020.
UBS expects flows of 200 billion yuan into the A-share market in 2021, citing enchancment in China’s authorized safety for traders, higher info disclosure by main shareholders and extra succesful main companies in varied industries.
(Graphic: International traders continued to purchase A-shares in 2020, https://fingfx.thomsonreuters.com/gfx/buzz/oakveyodrvr/Foreignpercent20investorspercent20continuedpercent20topercent20buypercent20A-sharespercent20inpercent202020.jpg)
Some traders imagine the exuberance onshore is justified as a result of China’s strong financial restoration, continued coverage assist and additional opening up of its capital markets.
“There is no such thing as a frothiness in main large-cap shares, seen as safer bets as China pushes ahead with registration-based IPO reforms available in the market,” mentioned Wang Mingli, govt director of Youpu Funding, a Shanghai-based non-public securities fund.
“Buyers would come again even later in the event that they scale back publicity for now as there are few choices on the market that symbolize the nation’s future financial growth,” he added.
($1 = 6.4676 Chinese language yuan)
($1 = 7.7517 Hong Kong {dollars})
(Reporting by Luoyan Liu and Andrew Galbraith in Shanghai; Enhancing by Ana Nicolaci da Costa)
Copyright 2021 Thomson Reuters.
