Deluge of Chinese retail money pouring into Hong Kong stocks

A enormous amount of money from mainland China is flooding the Hong Kong stock market and it’s set to continue, according to one of Credit Suisse’s most senior bankers.

Credit Suisse Vice President, Greater China, Dr Dong Tao, says the mainland money is a major factor behind the recent rise in the Hang Seng Index which is up almost 20% in the past 12 months.

“Judging from the sentiment in the new funds race in China, I think the hot money is going to continue for a while,” said Dr Tao in a video interview (watch below).

“I think the mainland money will take increasingly large shares of the Hong Kong Stock Exchange with rising influence.

Wealthy retail investors are said to be behind the majority of the money moving from China to Hong Kong stocks and Dr Tao says the direction of future capital flows is predictable.

“There are some clear characteristics of the mainland money. First it’s ETF heavy, so concentration on heavily weighted index stocks is high,” he said.

“Second, they love the leading companies in the sub sectors of the hot industries with strong consensus and they tend to move in and out quickly.

“My suggestion to investors is do your own homework, stick to the fundamentals, then go along with the flow.”

Hong Kong stocks are fundamentally sound

Dr Tao said the deluge of retail money from China is “influential” but not the most dominant factor when it comes to the outlook for Hong Kong stocks.

“What’s important for the Hong Kong markets is not the origin of the money but its own fundamentals. The Hong Kong market is trading at 16 x P/E, while the U.S. is 25 x.

“Now-days on the Hong Kong Stock Exchange, over 80% of listed companies originate in China. Over 80% of earnings are made inside of China. Majority of demand for capital also comes from China. China had much better control over the pandemic (compared to the U.S.) and its economy has largely recovered.

“Hong Kong Stock Exchange is in essence an offshore Chinese stock market. The Hong Kong market has the best Chinese companies listed – the strongest, most dynamic, most innovative Chinese companies are all listed here.

“This is a platform to demonstrate the economic performance of china. This is a market that benefits from the fruits of economic development in China.

“I expect most Chinese companies listed in the U.S. will be coming to Hong Kong in the coming years as well.”

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