On January 20, the actual net purchase amount of Nanxiang capital exceeded HK $20 billion, which was the third trading day in 13 trading days since January, and the inflow of these 13 trading days exceeded HK $10 billion.
In the past five years, the accumulated net inflow of southward capital has reached HK $1.89 trillion, far exceeding the scale of northward capital in the same period (RMB 1.24 trillion). From the perspective of daily average turnover, the proportion of daily average turnover of Hong Kong stock connect in the Hong Kong stock market has also risen from 20% at the end of last year to nearly 30% due to recent efforts. Tencent holdings, China Mobile, CNOOC, SMIC and meituan, which are the most popular stocks, have a total net inflow of HK $111.3 billion, accounting for 70% of the net inflow of Hong Kong stocks since the beginning of the year. It seems that it is not too much to describe them as “group”.
Is southbound capital sustainable? Will domestic investors snatch the pricing power of Hong Kong stocks? At present, the focus of the market has undoubtedly shifted from the capital flow itself to the pricing power and valuation tolerance of Hong Kong stocks.
Domestic capital grabs “pricing power” of Hong Kong stock
Wu Zhaoyin, director of macro strategy of AVIC trust, told China first finance and economics, “many newly issued fund contracts in the mainland have written about the allocation of Hong Kong stocks, and the allocation ratio of Hong Kong stocks has been raised to 50% (in the past, it was generally about 20%). As a result, Hong Kong stocks with low valuation have become the bottom position. It is estimated that the southward market will continue for a certain period of time. Companies with low value, high dividend and Internet companies It will be the focus of configuration. ”
Data show that in the new funds issued in January this year, more than half of the products will be included in the scope of investment in Hong Kong stocks, and the highest proportion of investment in Hong Kong stocks by “sunshine base” is 50%. In addition, huitianfu, Guangfa, Boshi, huataibairui, Dacheng and other fund companies all submitted applications for raising Hong Kong stock funds in December last year. In the next stage, a number of fund companies, such as harvest, Huaxia, Hongyi Yuanyuan, Boshi and Yinhua, will also sell Hong Kong stock funds. With the “secondary listing” of China capital stocks back to Hong Kong, and many excellent new economy leading companies have listed or intend to list in Hong Kong stocks, the ecology of Hong Kong stocks is richer. Some scarce sub sectors (property, education, 18a pharmaceutical companies, etc.) that a shares do not have also provide more and better choices for active funds.
The five stocks Tencent holdings, China Mobile, CNOOC, SMIC international and meituan are most favored by southbound capital. Their total net inflows account for 70% of the net inflows of Hong Kong stock connect since the beginning of the year. This year’s earnings are also very considerable, with year to date increases of more than 10%. Over the same period, the Hang Seng Index rose by 8.85%, of which SMIC international gained the most, from HK $19.48 on January 5 The year’s lowest price to close on the 20th (HK $29.5) has risen 51.4%, significantly outperforming the single digit increase of SMIC International A shares.
The premium of ah shares has always been at a high level. According to the traditional view, because Hong Kong shares are dominated by international investors, who prefer revaluation and have abundant hedging tools, it will be a long-term normal phenomenon that the valuation of Hong Kong shares can not match that of a shares. According to the survey report released by the Hong Kong Stock Exchange in November 2020, the transaction amount of various investors in Hong Kong stocks accounted for 20.3% of individual investors and 53.4% of institutional investors (including 16.8% of local investors and 36.6% of non local investors). In the composition of overseas institutional investors, the mainland of China will replace the UK as the most important source in 2018, which largely benefits from the further deepening of the interconnection mechanism. Therefore, there are more and more discussions on ah stock premium or gradual narrowing, pricing power or transfer of Hong Kong stock.
Foreign capital may be entangled or forced to empty
In the face of this new situation, the hearts of foreign investors are also quite tangled. Many investment managers of foreign-funded institutions told reporters that the valuation of some companies has been quite high, but in view of the fierce momentum of southward capital, it is difficult for them to judge to what extent the tolerance of valuation should be raised.
Nader naeimi, manager of Australian security capital fund, told reporters: “I can’t understand why southbound funds are so strong. It may be that they are hunting down undervalued stocks, but I don’t think it will last long.”
There are many overseas investors who think like naemi. In the face of some Hong Kong stock companies with high valuations, some foreign-funded institutions told reporters that they have or hope to short the relevant targets, but the strong momentum of southward capital has forced such institutions to be short. The difference of valuation understanding between domestic and foreign institutions has reached an extreme level.
Some more practical investment managers of Hong Kong stocks told reporters: “this proposition (whether domestic capital will seize the pricing power of Hong Kong stocks) is very difficult to say. Standing at the present time, I can not answer it. I can only say that at the initial stage, we should follow the trend and improve the tolerance of valuation, especially for high-quality large market value enterprises. Just like today (January 20), the strong capital inflow leads to the source of income On ETA (market earnings), large cap stocks such as Alibaba rose as high as 8.52%. But when liquidity is tight, the phenomenon of killing valuation may also be obvious. ”
In fact, the recent US investment ban on some Chinese enterprises has also made many international investors hold a wait-and-see attitude towards relevant companies. US institutions are also required to remove the relevant exposure in their portfolios by the end of 2021, including China’s three major telecom operators, SMIC international, CNOOC, etc. Wang Ying, China equity strategist at Morgan Stanley, told reporters that US investors are expected to hold us $11.9 billion of relevant exposure, of which US $8.5 billion needs to be cleared on November 11, 2021, and US $3.3 billion needs to be cleared before December 3.
This has also affected market sentiment before, but recently some institutions have also observed a lot of domestic capital flowing into related companies. Huang Xiang, head of China Securities Research at Credit Suisse, told China business news that in view of the fact that some Chinese companies have been affected and eliminated by the international index, there has been a sharp correction in the stock price before, “we can’t rule out some mainland funds coming into the market for bottom hunting. At the same time, we do see that some clients of foreign institutions outside the United States are very interested in these enterprises, because their valuations have fallen to a low level It is also very attractive in terms of dividend income. ”
Will foreign investment smash the market?
At present, people from all walks of life begin to pay more attention to the risks faced by Hong Kong stocks. Foreign investment and liquidity contraction may be the trigger factors.
Although the current southward capital has the upper hand for a while, Zhao Wenli, chief Hong Kong stock strategist of CCB international, told reporters, “after all, it will take a longer time for the transfer of pricing power of large Hong Kong stocks, so the trend of foreign capital needs to be closely monitored. The risks in the future market include the capital game between China and foreign countries caused by the rising valuation (foreign capital is more cautious about valuation), as well as the repeated epidemic situation and geopolitical risks. These factors, reflected in the capital flow, make the trend of the US dollar a key seesaw. At present, it is dangerous for the market to be too short on the US dollar, and Yellen does not agree with the weak US dollar policy orientation. Once the US dollar unexpectedly strengthens, emerging market funds will inevitably flow out. ”
However, for now, the external liquidity and the momentum of southward capital have not shown signs of weakening. Recently, US President elect Biden has announced a fiscal stimulus policy of US $1.9 trillion, which is significantly higher than the previous US $900 billion. This stimulus plan includes: paying us $1400 directly to most Americans, including the US $600 approved in December 2020, the total amount of relief will reach US $2000; increasing the federal weekly unemployment benefit to US $400, and extending the term of the stimulus plan Wait until the end of September.
In addition, the Federal Reserve is also cooperating with the injection of liquidity. The $120 billion monthly asset purchase plan has expanded the Federal Reserve’s balance sheet to $7.3 trillion, accounting for 35% of GDP. The discussion of reducing debt purchases seems to run counter to the Fed’s commitment to “overheat” the economy when it announced the average inflation target framework in the third quarter of last year. In 2020, the US investment grade (Ig) companies issued US $2 trillion of bonds, and the US A-level credit spread has narrowed to the pre epidemic level. Without the support of the central bank, it is impossible to achieve this, so it is “easy to say but difficult to say” to shrink the table.
At present, it is difficult for southward funds to drop significantly. Wu Zhaoyin told reporters that the momentum of public fund issuance is still strong, and the proportion of Hong Kong stock allocation is rising. “At present, the valuation of Hong Kong stocks is low, which meets the allocation requirements of the new development fund. The momentum should be sustainable, and the target of allocation is also A-share scarcity, just like northward capital only buys China’s core assets that are not in Hong Kong stocks.”