HONG KONG: Hong Kong’s main stock index surged past 30,000 for the first time in 10 years, as a wave of Chinese buying and a surge in shares of tech giant Tencent Holdings Ltd. propelled the market through its latest milestone.
The Hang Seng Index ended 0.6% higher at 30,003.49 on Wednesday, its fourth straight day of gains, driven by financial companies such as index heavyweight HSBC Holdings PLC. The benchmark has risen about 5.3% this month and 36% for the year, putting it among the best-performing stock indexes in 2017, although it is still about 5% shy of its all-time closing high in Oct 2007.
The gains follow a series of records set by US benchmarks including the S&P 500, the Nasdaq Composite, the Dow Jones Industrial Average and the Russell 2000. In Asia, the Nikkei Stock Average this month hit a quarter-century high, while the MSCI All Country Asia ex-Japan index set a record this summer.
A surge of capital flowing from mainland Chinese funds into Hong Kong-listed stocks has fueled this year’s rally: Investors in mainland China can invest in the market through the so-called Stock Connect trading links with Shanghai and Shenzhen. For the week ended Nov 17, net buying from mainland investors was one of the heaviest of the year, according to Kenneth Chan, global quantitative strategist at Jefferies in Hong Kong.
“There’s a new source of liquidity in this market which is southbound flows,” said Andrew Swan, head of Asian and global emerging-market equities at BlackRock. “It’s an influence on this market which is new and it’s large and it’s continuing to grow.”
The market has also benefited from this year’s global rally in tech stocks, although in Hong Kong’s case that is largely down to one stock — Chinese videogames and social-media giant Tencent. Its shares have more than doubled in value this year, accounting for almost one-third of the Hang Seng Index’s overall gains.
The company, which runs the wildly popular WeChat messaging app, earlier this week became the first Asian tech company to achieve a US$500 billion market capitalisation, exceeding US social-media giant Facebook Inc in value. Tencent was recently down 0.7% on Wednesday.
Hong Kong has recently witnessed a spate of initial public offerings of tech-related stocks, such as Tencent subsidiary China Literature Ltd, which owns a large online library of works by Chinese authors, and Razer Inc, which sells hardware to videogame players around the world. Those stocks have tended to surge in value straight after their flotations.
Their strong performance is making some investors nervous.
“I think a bubble is starting to emerge,” said BlackRock’s Mr. Swan. “Not all technology companies are created equal.” Mr Swan said BlackRock, the world’s largest asset manager, was now “underweight” Asian tech stocks, meaning it owns less of the sector than suggested by its benchmark.
Even amid this year’s rally, the Hang Seng Index’s valuation looks attractive relative to its global peers. Trading at 13 times projected earnings over the next 12 months, its price-to-earnings ratio is well below the more than 19 times it fetched a decade ago, when the market was at record levels. The S&P 500 currently trades at around 18 times expected earnings.
Global investors have spent most of the year wary of the rally in Chinese stocks, many of which are listed in Hong Kong, citing opaque accounting standards and high levels of leverage. Some, though, have started to change their minds.
UBS Wealth Management’s chief investment office said Wednesday it would add to its holdings of stocks in Asia outside of Japan above the level suggested by its benchmark. It cited company earnings that have recovered “vigorously”, adding that investors were “supportive, but not yet euphoric.” - WSJ
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