The beauty of a company is in the eye of the investor. After a poor December debut, Hong Kong-listed Meitu is up 80 per cent in the past fortnight. The group, which makes apps to beautify smartphone selfies, was added in early March to a list of shares available to buyers in China through a scheme known as Stock Connect. This enables China-based investors to buy Hong Kong-listed shares.
Meitu’s soaring popularity, although perplexing given a lack of earnings, highlights the appeal of Hong Kong stocks to northern investors. Flows from China have been strong, with aggregate net buying of $7bn so far this year, according to Goldman Sachs. That compares with . . . cumulative purchases of $57bn since the launch of Stock Connect in November 2014. Mainland ownership of Hong Kong stocks is still small, though, at just 1 per cent.
Adding to the bull case, foreign investors may be as much as 3 per cent underweight in Chinese shares versus MSCI benchmarks, which include Hong Kong-listed China stocks. And there are plenty of sources for funds. Mainland insurers are increasingly constrained in their search for overseas assets. Underfunded Chinese pension schemes will also have to invest in riskier securities, analysts note.
Hong Kong stocks fit the bill. They offer an easy route to diversification — and a cheap one, since the Hong Kong lines of shares listed on both markets, such as Bank of Communications, still trade at an average discount of 14 per cent to mainland counterparts. The discount has been bigger, as high as 33 per cent over the past 12 months.
Keep an eye on what attracts those buyers from the north. They have been notable players in mid-caps, fewer of which have dual listings. Carmaker Geely also doubled in just over six months. Meitu’s run, though, may not last. It reports maiden results on March 24. The numbers cannot be as easily prettified as a smartphone snap. So the shares may come under pressure.
Email the Lex team at lex@ft.com
source http://www.omnipopmag.com/2017/03/17/hong-kong-stocks-only-connect/
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