Translated by Andrew Vanburen from a Chinese-language blog in Sinafinance by Victory Securities market watcher Gao Juan
WHAT DO YOU GET in Hong Kong when you cross lower than expected trade and GDP figures in China with higher than anticipated inflation data?
Not much.
That’s because Hong Kong’s capital market is inextricably linked to what happens in China.
In short, investors in Hong Kong shares shouldn’t expect extended rallies anytime soon.
That being said, the volatility surrounding the all-important property market – especially in Mainland China – is increasingly looking like a good opportunity for bargain hunters.
Regional markets began on an upbeat note on Wednesday but Hong Kong was slow to wake up in morning trade, and ended edged down 0.15% on the day to close at 20,646.29.
Turnover on the day was 41.9 billion hkd, 8% lower than Tuesday’s total.
This should be of concern to short-term investors as it suggests that the appetite isn’t in the works for any sustained run.
On the day, property developers fared better than the whole, continuing to get a lift from expectations of possible additional interest rate action from Beijing in the near term.
As for the world outside of Hong Kong, New York closed higher and European markets continued to show a gradual uptrend.
Meanwhile, bourses closer to home in Asia – most notably in Shanghai and Shenzhen – also ended on an upbeat note.
News from Beijing gave some reason for cheer, as investors looked favorably upon an announcement from the People’s Bank of China showing existing individual home loans at the end of March stood at 7.3 trillion yuan, up 12.1% from a year earlier.
Domestic funds have expressed that they are generally most sanguine on prospects for profitability in the real estate sector and are most likely to funnel money into these opportunities.
Over 10 billion yuan in fund monies could end up being targeted in this direction as Beijing has recently been intimating it will not be bending over backwards to protect property prices from falling further, especially in second and third tier cities.
Needless to say, this presents a myriad of opportunities for bargain hunters looking to initiate or bolster land banks at what are increasingly looking like fire sale prices in some markets.
The funds are also chasing opportunities in smaller-sized property markets after economic regulators have begun relaxing pre-existing restrictions on ownership of second and third properties.
The oversight body keeping a watch over the country’s lenders – the China Banking Regulatory Commission – is currently conducting exhaustive due diligence research that might allow significantly more and easier access for private equity into the financial system, and will be releasing its findings and possible regulatory changes in due course.
Although seen as a necessity rather than a luxury, this move toward further capital market liberalization will certainly provide a shot in the arm to both Mainland China’s and Hong Kong’s stock markets.
The only problem is that these measures take time to find their way into on-the-ground policy.
In the meantime, I wouldn’t recommend investors here in Hong Kong expecting a big boost anytime soon hold their breath.
See also:
KISSING COUSINS: PRC Market Rise To Carry Hong Kong
SHOW ME THE MONEY: What Happens To SOE Profits In PRC?
China IPOs Putting Pressure On Large Caps
NEW KID ON BLOCK: 21 A-Shares In Red; 4 In Hot Water