Charles Li, chief executive officer of Hong Kong Exchanges and Clearing Ltd. (HKEx),... Read More
Shares of Tencent Holdings Ltd. (700), HSBC Holdings Plc (HSBA) and Galaxy Entertainment Group Ltd. (27), identified by analysts as likely targets for mainland investors, declined as the cross-border trading program debuted yesterday, sending the Hang Seng Index down 1.2 percent, its biggest drop in almost a month. All three shares extended losses today as Hong Kong stock purchases through the link have so far totaled about 2.6 billion yuan ($419 million), less than 15 percent of
the amount bought by foreign investors in Shanghai.
One reason for the tepid response from Chinese investors is that share prices for industry leaders previously out of reach on the mainland had already run up in anticipation of the link, according to UBS AG. Tencent, operator of the WeChat messenger service, and Galaxy, which runs Macau casinos, both jumped more than 7 percent last week after the start date was announced.
“Investors from China are clearly trying to pick value,” Yang Xia, the Shanghai-based head of China equities at UBS, said in a phone interview yesterday. “They are not just buying shares that are not available domestically.”
Charles Li, chief executive officer of Hong Kong Exchanges and Clearing Ltd. (HKEx),... Read More
Poor Record
Some mainland investors were also turned off cross-border investing by the poor track record of Chinese money managers who buy foreign shares through the Qualified Domestic Institutional Investor program, according to Shenyin & Wanguo Securities Co. Others just don’t want to go through the trouble of learning a new set of market rules when they already have access to domestic shares, said Dai Ming, a money manager at Hengsheng Asset Management Co. in Shanghai.Galaxy, controlled by billionaire Lui Che Woo, dropped 2.7 percent in Hong Kong yesterday, the first decline in seven days. Tencent lost 2.1 percent, the biggest slide in almost two months. HSBC, Europe’s biggest bank by market value, slipped 0.4 percent to a four-week low.
Deutsche Bank, Goldman and BNP had all picked Tencent as a beneficiary of the link in research reports this month, while Deutsche Bank also recommended Galaxy. HSBC was mentioned by Goldman, BNP and Credit Suisse Group AG as likely to gain from the link.
Galaxy slid 3 percent at the close in Hong Kong today and Tencent dropped 2.6 percent, while HSBC lost 0.5 percent. The Hang Seng gauge retreated 1.1 percent as Hong Kong stock purchases through the link today totaled 800 million yuan.
Getting Comfortable
Yesterday’s debut marked one of China’s biggest steps toward opening up its capital account, increasing global use of the yuan and turning Shanghai into a world financial center. International investors purchased the maximum 13 billion yuan of Shanghai shares allowed through the link by 1:57 p.m. local time, triggering a halt in buy orders for the rest of the day.Hong Kong stock purchases were within expectations, Charles Li, the chief executive officer of Hong Kong Exchanges & Clearing Ltd., said at a briefing after the bourse closed yesterday. Some Chinese investors are still monitoring how trading through the link works, he said. Mainland traders with at least 500,000 yuan in their accounts are eligible to purchase Hong Kong shares.
“It will take time for local investors to get used to foreign markets,” Gerry Alfonso, a China equity sales and trading director at Shenyin & Wanguo Securities Co. in Shanghai, said by e-mail.
Dual-listed shares valued at a discount in Hong Kong were also among yesterday’s losers, after surging in recent months in anticipation of Chinese buying through the link. All of the 20 dual-listed shares that slumped more than 5 percent in Hong Kong yesterday trade at a discount versus their Shanghai counterparts, according to data compiled by Bloomberg.
Dalian Port PDA Co. sank 12 percent, widening its discount in Hong Kong to 47 percent. Nanjing Panda Electronics Co., which now trades 46 percent cheaper in Hong Kong, slid 9.9 percent.
“The price gap between some small-caps in the two markets will persist for a while,” Zhang Haidong, an analyst at Tebon Securities Co., said by phone from Shanghai.
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