Hot Money For Overseas Investment Is Guided To Hong Kong Stock Connect By Policies

What are the best performing assets that Chinese people can participate in in the past three months? Apart from the real estate in some areas, it is probably Hong Kong stock. From the low point in late December to the high point (March 21), the Hang Seng Index rose 14.7% in three months, while the Shanghai Stock Exchange Index rose only 6.7% in the same period, and the GEM index just barely leveled off.

As far as the stock market is concerned, the most dangerous thing in 2017 is the GEM and SME board in A-share market, and the biggest opportunity is Hong Kong stock market. Since the Spring Festival, a large amount of mainland funds have been flowing into the Hong Kong stock market through the "Hong Kong Stock Connect" of Shenzhen and Shanghai exchanges.

First, Hong Kong shares are cheap. For quite a long time, Hong Kong shares It is the third cheapest market in emerging markets after Russia and Egypt. The reason why Hong Kong shares are cheap is related to several factors. First, in the view of western investors, Hong Kong shares are "quasi RMB assets". More than 60% of the market value and 70% of the trading volume are centered on mainland enterprises (including the so-called H-shares, red chips, and mainland private enterprises). If the RMB continues to depreciate, the profits converted into Hong Kong dollars will shrink due to the exchange rate problem, so they continue to reduce their holdings of Hong Kong shares; Second, Hong Kong has been a bit down in the last two years for political reasons; Third, the US dollar entered the interest rate increase cycle, while the Hong Kong dollar is tied to the US dollar.

Second, Hong Kong shares are convenient and easy to realize safe-haven assets 。 There is no doubt that the RMB has peaked against the US dollar and has entered a depreciation cycle. Due to Trump, the depreciation rate of RMB has been curbed recently, but the pressure of depreciation is still there. Mainland hot money needs to allocate overseas assets, but foreign exchange control is strengthening. Only QDII and Hong Kong Stock Connect are legal overseas investment channels for ordinary people.

In the eyes of mainland people, Hong Kong shares are priced in Hong Kong dollars, and Hong Kong dollars are tied to the US dollar through the linked exchange rate system, so they are "quasi US dollar" assets. If you buy the shares of mainland enterprises in Hong Kong shares, it is equivalent to buying the mixed assets of "USD+RMB"; If you buy Li Ka shing's "Changhe" or HSBC, it is basically equivalent to buying US dollar or euro assets.

Third, the government intends to guide funds into the Hong Kong Stock Connect.

Since last year, foreign exchange control has been tightened, and it is no longer allowed to purchase investment insurance in Hong Kong. Many underground banks that connect the mainland and Hong Kong secretly have also been investigated and dealt with. As for the Hong Kong property market, two 15% stamp duties have also been levied on mainland buyers. These investment channels have been restricted, but the official cancelled the total quota of Hong Kong Stock Connect, and only reserved the one-day quota of 10.5 billion yuan each day in Shenzhen and Shanghai markets.

Therefore, we hope that the hot money for overseas investment will be guided to Hong Kong Stock Connect by the policy.

Fourth, there is another short-term factor that cannot be ignored. This is the sudden reduction of the expectation of RMB depreciation.

Since Trump's team is highly sensitive to the RMB exchange rate, in order to avoid a large-scale trade war, China will keep the RMB basically stable in 2017. In this way, the discount factor given to Hong Kong shares by the market has temporarily disappeared, and the valuation of Hong Kong shares needs to be improved. This is one of the driving forces behind the rise of Hong Kong stocks in the past few months.

With the moneymaking effect and official channels, mainland funds began to flow into Hong Kong stocks.

Today (March 22), because this morning US stocks Hong Kong shares fell more than 300 points due to the sharp drop. However, in the medium term, the market caused by the inflow of funds from the mainland is still not over, and the rise will continue in twists and turns for a period of time, mainly around the Hong Kong Stock Connect.

But we need to remind you that Hong Kong shares are a highly internationalized market, and the IPO registration system is implemented, with no price limit. Therefore, participating in the Hong Kong stock market is like swimming in the open sea. The wind is high and the waves are sharp. If it is not done well, it will lose a lot.

Recently, in response to more and more cases of cross regional market manipulation, the Mainland Securities Regulatory Commission and the Hong Kong Securities Regulatory Commission, as well as the three major exchanges in Shanghai, Hong Kong and Shenzhen, have strengthened cooperation and market supervision.

It is worth noting that due to the pressure of the United States on the RMB exchange rate, it cannot depreciate according to the market level, and the foreign exchange reserves will continue to shrink in the future. In this context, if the Hong Kong Stock Connect is too popular, it will be subject to regulation at any time. If the total quota is restored or the daily quota is reduced, it will constitute a big negative and cause a sharp decline. In addition, the trend of international markets such as the US stock market also has a great impact on Hong Kong stocks. In this regard, investors should not be unprepared.

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