Capital flow to HK sign of market vitality

For three trading days in a row this week, the net buying of shares on the Hong Kong stock market has surpassed HK$20 billion ($2.58 billion) each day. And the net buying over the 13 trading days so far this year reached HK$205.58 billion as of Wednesday. Most of the capital is believed to have come from the Chinese mainland.

The southward flow of the capital is a result of excess liquidity.

The unlimited easing policies of the Federal Reserve have boosted prices of core assets around the world. Even China has implemented some stimulus measures to bail out the economy, which has raised real estate prices in some cities and share prices of some companies, creating some bubbles.

The inflow of capital to the Hong Kong stock market, where stock prices generally remain within rational range compared with that of the A-share market, shows that investors are fully aware of the potential risks associated with the inflated price of core assets on the mainland.

According to the Hong Kong Stock Exchange, the funds have mainly gone to several listed companies, such as Tencent, China Mobile, Semiconductor Manufacturing International Corporation and China National Offshore Oil Corporation, etc.

It is not because the investors think the Hong Kong market can grant them a high return but because they believe that by doing so they can hedge the risks and uncertainties triggered by the overheated market on the mainland, as the new US administration is likely to roll out bigger bailout packages to stimulate growth that will boost stock prices in the Hong Kong market.

Also, the US dollar index will continue to drop, while the renminbi will appreciate, and the HK dollar will be more closely linked with the changes to the US dollar.

These projections are all buttressed by sufficient liquidity, and steer the flow of capital through specific incidents and market moods.

Therefore, the fund flow to the Hong Kong market is not to compete for the so-called pricing power there, but a normal speculative overflow of the capital. The vitality of the market is conducive to promoting development and innovation of the Hong Kong market.