HSI soars 961 points, turnover up 700% after long Easter holidays

A flood of investment funds from the Chinese mainland on the first trading day after the Easter break pushed the city's benchmark index up by nearly 4 percent to a 7-year-high at 26,236.85 on turnover of HK$250 billion.

The Hang Seng Index (HSI) soared a whopping 961 points at the close - the highest since May 9, 2008 - while turnover skyrocketed 700 percent from that of the previous trading day last Thursday.

The benchmark Hang Seng Index surged to a seven-year high on Wednesday after a five-day break, amid a huge influx of investment funds from the mainland. Roy Liu / China Daily

Hong Kong Exchange & Clearing Ltd (HKEx) Chairman Chow Chung-kong said the huge influx of mainland funds was the "most important stimulus" of Wednesday's market rally.

Southbound investors used up the Shanghai-Hong Kong Stock Connect program's full daily quota of 10.5 billion yuan, or 8.3 percent of the market's total turnover, for the first time since the scheme was introduced in November last year. The previous highest usage of the daily quota recorded on March 30 reached only 2.6 billion yuan, according to HKEx figures.

The Hang Seng China AH Premium Index, which tracks price discrepancies between dual-listed shares, narrowed by 5.04 percent to 128, reversing a long-term trend. The index last month rose to its highest since October 2011, indicating a 36-percent premium on Shanghai-listed A-shares compared with their Hong Kong counterparts.

"Lower valuation of H-shares, especially that of large-cap stocks, is still the main attraction for mainland investors," said Alvin Lao, an analyst at Emperor Securities Ltd in Hong Kong. He said the strong rally after the Easter holidays was attributable, at least partly, to the catching up with the surge in the Shanghai Composite Index which rose 2.4 percent on Tuesday to above the 4,000 psychological level.

Stock analysts said the price gap between Hong Kong-listed H-shares and Shanghai-listed A-shares had widened to levels that can no longer be ignored by investors.

"The valuation gap makes H-shares look cheap," HSBC analysts wrote in a report released on Wednesday. "We expect a series of policy moves to make it easier and more appealing for the large number of mainland retail investors who are driving up A-shares to start switching their attention to Hong Kong."

The requirement for mainland individual investors to have at least 500,000 yuan in their trading accounts to use the link program is expected to be relaxed or scrapped later this year, according to HSBC. Margin trading is likely to be introduced, and an expected agreement to allow sales of mutual funds to investors in Hong Kong and on the mainland would boost demand for Hong Kong shares, according to the report.

Meanwhile, the mainland authorities have removed the restrictions on insurance companies by allowing them to invest in stocks listed on the Hong Kong Growth Enterprise Market.

Lao said he believed the local market's uptrend, triggered by mainland stimulus measures, will continue for a longer time, and the HSI is expected to break the 30,000-point barrier by yearend.

Chow also said that if everything goes well with the upcoming Shenzhen-Hong Kong Stock Connect, which is due to be launched in the second half of this year, it's possible that the daily quotas for both northbound and southbound investment flows will be lifted.

gladdy@chinadailyhk.com

(HK Edition 04/09/2015 page8)