Hang Seng Index approaches 30,000 level on record trading volume as mainland cash fuels best start to year since 1985

20-Jan-2021 Intellasia | South China Morning Post | 6:02 AM Print This Post

Hong Kong stocks surged, driving the benchmark index to the highest level in 20 months and daily turnover to an all-time high, as mainland funds flocked to the world’s cheapest major markets with record purchases.

The Hang Seng Index jumped 2.7 per cent, or 779.51 points, to 29,642.28 at the close on Tuesday. That put the gauge within 1.2 per cent of 30,000 points, a level not seen since May 2019. The Shanghai Composite Index slipped 0.8 per cent.

Some HK$301.6 billion (US$38.9 billion) worth of shares changed hands, making it the busiest day ever in Hong Kong’s stock market history. The inflows also fuelled the local dollar, which advanced against the US currency to the strongest since January 8.

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The market’s 8.9 per cent gain so far this month marked its best start to a year in 36 years. The index rose 13.3 per cent in the first 19 days of 1985, the year Ronald Reagan was in the White House, and Hong Kong Canto-pop icon Anita Mui conducted her first concert at 21.

Mainland fund inflows through the Stock Connect programme have been the biggest catalyst for the city’s stocks. Those traders have spent HK$185.3 billion on local stocks in the new year, according to Bloomberg data.

That volume is equivalent to almost a quarter of the combined net purchases in 2020. Daily inflows reached HK$26.6 billion on Tuesday, a second successive day of record purchases since the cross-border market linkages with Shenzhen and Shanghai were established from November 2014.

Forty-eight of the 52 constituents on the Hang Seng Index rose, while three declined and one unchanged. China Resources Land, Anta Sports Products and Sunny Optical Technology surged at least 7.9 per cent to lead the rally. Hong Kong Exchanges & Clearing, the bourse operator and a beneficiary of market trading, surged 3.9 per cent to record HK$501.

China’s faster-than-estimated growth in the fourth quarter has also stoked demand for yuan-linked assets, with Hong Kong remaining the biggest onshore market of the Asian nation. China’s economy surpassed 100 trillion yuan (US$15.4 trillion) mark for the first time last year, with growth accelerating to 6.5 per cent in the final three months, the government said on Monday.

“Hong Kong’s market may perform better in the economic recovery, given its low valuation and big weighting of traditional cyclical sectors,” said Yan Xiang, an analyst at Guosen Securities.

The run-up comes even as Hong Kong’s economy is expected to shrink 6.1 per cent in 2020, according to an official estimate. Daily reports show the government is still fighting to contain fresh outbreaks. The government will extend Social distancing measures even as vaccination plan is being implemented.

The benchmark index last week climbed above the January 22 high, a day before China announced the lockdown of Wuhan, the epicentre of the Covid-19 outbreak. The rebound has erased all of the losses since that day, with the market recouping $2.5 trillion of market value in the process.

The rally has vaulted Hong Kong’s blue-chip companies to 13.3 times estimated earnings, compared with the multiple of 22.9 times for the S&P 500 index and 18.4 times for Europe’s euro Stoxx 50 index. China’s yuan-traded onshore stocks are 34 per cent more expensive than Hong Kong shares, according to a gauge tracking the price gap of the two markets.

“Retail investors from mainland China are still eager to buy Hong Kong stocks, so the market may have more room to grow,” said Kenny Wen, wealth management strategist at Everbright Sun Hung Kai.

Markets in Asia-Pacific also gained on growing optimism the US will endorse a new $19 trillion relief package to combat the Covid-19 pandemic. In Australia, the S&P ASX 200 jumped 1.2 per cent while Japan’s Nikkei 225 rose 1.4 per cent and South Korea’s Kospi Index rallied 2.6 per cent.

Investors are tuning in to the Senate confirmation hearing of Janet Yellen, former chair of the Federal Reserve, who is likely to touch on US currency policy. It will also serve as the first congressional forum for lawmakers to vet President-elect Joe Biden’s $1.9 trillion aid package.

“The positive shift in investor optimism ahead of inauguration day is a clear signal the market is leaning towards an early stamp of approval on the Biden administration policy agenda,” said Stephen Innes, a strategist at Axicorp.



Category: Hong Kong

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