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Over the past few months, the quota of the Southbound Trading of Shanghai-Hong Kong Stock Connect was consumed rapidly with the drive of accelerated capital flows from the Mainland to Hong Kong. As of July 18, 201.8 billion yuan southbound quota was utilized, accounting for 80.72 percent of the total.
Hong Kong Exchanges and Clearing Limited (HKEX) has recently issued statistics of the Southbound Trading in the first half of 2016. It shows that over 40 percent of southbound capitals have flowed into financial stocks. Well-established Hong Kong financial stock HSBC Holdings plc (00005.HK) and Mainland banking stocks listed in Hong Kong were most favored by capitals.
Mainland capitals flowed to Hong Kong at faster speed
In the second quarter of 2016, the transaction of the Southbound Trading indicated a significant rise, and capitals flowed faster. Monthly data reveals that the net inflow of the Southbound Trading in April was just 2 billion Hong Kong dollars, which climbed to 26.8 billion Hong Kong dollars in May. The reading in June was a more startling 44 billion Hong Kong dollars. It resulted in the average daily net inflow in the first half of 2016 to increase to 936 million Hong Kong dollars, up 69 percent from 2015 and hitting record high.
In fact, the Southbound Trading had maintained daily net inflow for over two months from April 25, 2016, and this trend is expected to continue. The transaction of the Southbound Trading has also become increasingly active. The turnover of the second quarter had increased by 27 percent compared with the previous quarter. And the percentages corresponding to the Hong Kong stock market had increased from 1.6 percent at the beginning of the year, to 3.2 percent in June, nearly doubled. This indicated that the influence of the Southbound Trading on the Hong Kong stock market is increasing.
Over the past few months, Mainland capitals expedited the steps southward. Accordingly, the quota of the Southbound Trading consumed fast. As of July 18, 201.8 billion yuan southbound quota was utilized, accounting for 80.72 percent of the total.
But which stocks had the Mainland capitals flowed to via the Southbound Trading in the first half year? Data shows that Hang Seng large-cap stocks were most favored by Mainland investors during the year, as turnover of these shares accounted for half of the total turnover of the Southbound Trading. Dividing by industries, the proportion of financial stocks significantly increased from 21 percent in 2015 to 41 percent in terms of the total turnover. Industrial stocks dropped from 18 percent in 2015 to 6 percent.
Investors increase shareholding in HSBC and Mainland banking stocks
HSBC Holdings and H shares of China Construction Bank Corporation (CCB) (601939.SH; 00939.HK) were large cap Hong Kong stocks with the biggest market capitalizations that had seen strong buying from Mainland investors in the first half year.
HKEX’s statistics show that as of June 30, 2016, Mainland capital had held 428 million shares of HSBC Holdings’ shares through the Southbound Trading with market value of 20,277 million Hong Kong dollars, increasing by 15,550 million Hong Kong dollars, or 328 percent from the end of last year. This also means that of the more than 200 billion yuan southbound quota utilized, nearly ten percent were used to buy shares of HSBC Holdings, and mostly during the first half year.
Mainland capitals also purchased H shares of CCB in large amount during the first half year. As of the end of June, Mainland investors had held 3,428 million shares of CCB’s shares through the Southbound Trading with market value of 17,550 million Hong Kong dollars. While back in 2015, CCB was not spotted at the list of top ten Hong Kong shares with the largest shareholding by Mainland investors, and the market value held by mainland investors was no more than 2 billion Hong Kong dollars. Even as at the end of this April, the market value of CCB’s H shares held by Mainland investors through the Southbound Trading was just 2,360 million Hong Kong dollars. That means mainland investors had increased holding CCB’s H shares with market value of about 15.2 billion Hong Kong dollars within nearly two months.
In addition, as of June 30, the market value of Mainland investors’ shareholding in H shares of Industrial and Commercial Bank of China Limited (ICBC) (601398.SH; 01398.HK) had increased by 276 percent, reaching 12,129 million Hong Kong dollars; for H shares of Bank of China Limited (BOC) (601988.SH; 03988.HK), increasing by 104 percent to reach 4,020 million Hong Kong dollars; for H shares of China CITIC Bank Corporation Limited (601998.SH; 00998.HK), increasing by 40 percent to reach 3,593 million Hong Kong dollars.
While Tencent Holdings Limited (00700.HK), Hong Kong Exchanges and Clearing Ltd. (00388.HK), H shares of CRRC Corporation Limited (601766.SH; 01766.HK) and Fosun International Limited (00656.HK), which were pursued by mainland investors, failed to be included in the list of top ten Hong Kong shares with largest shareholding by Mainland investors in the first half year. Except for the above banking stocks, H shares of China Merchants Bank Co., Ltd. (600036.SH; 03968.HK), China Hongqiao Group Limited (01378.HK), H shares of China Petroleum & Chemical Corporation (600028.SH; 00386.HK), H share of China Shenhua Energy Company Limited (601088.SH; 01088.HK) , and Hanergy Holding Group Limited (00566.HK), which has been suspended trading for long, were among the list.
Positions of highly discounted H shares adjusted
From the perspective of the proportion of the number of shares held by Mainland investors through the Southbound Trading to issued share capital or outstanding shares of a certain stock (“proportion of shareholding”), highly discounted H shares were still popular subjects for Mainland investors in the first half year. But Mainland capitals also adjusted positions of such shares.
Notably, Beijing Jingcheng Machinery Electronic Holding Co., Ltd. (00187.HK) became the Hong Kong share with the highest proportion of shareholding by Mainland capitals, reaching 23.1 percent, up from 17.4 percent as at the end of last year; the proportion of holding of H shares of Dongfang Electric Corporation Limited (600875.SH; 01072.HK) also increased to 22.21 percent, up from 19.7 percent as at the end of last year. In addition, Mainland investors also increased holding in H shares of Guangzhou Baiyunshan Pharmaceutical Holdings Company Limited (600332.SH; 00874.HK), H shares of Zhengzhou Coal Mining Machinery Group Co., ltd. (601717.SH; 00564.HK) and H shares of Nanjing Panda Electronics Company Limited (600775.SH; 00553.HK).
However, Mainland investors reduced holding in H shares of Dalian Port (PDA) Company Limited (601880.SH; 02880.HK) and H shares of Zijin Mining Group Co., Ltd. (601899.SH; 02899.HK). The proportion of holding of H shares of Dalian Port dropped to 21.04 percent from 29.44 as at the end of last year.
(APD/XH FINANCE)
