The huge market liquidity that has pushed the A-share rally in Shanghai has finally rushed southwards to the Hong Kong stock market following explicit policy support from Beijing.
On April 8, the 10.5 billion yuan (US$1.7 billion) southbound daily quota was used up, the first time since the Shanghai-Hong Kong Stock Connect through-train program kicked off in November last year. That triggered a big jump in Hang Seng Index which rosed nearly 1,000 points to 26,236.86 points, the highest since May 2008. Transaction volume in the Hong Kong stock market also reached a record high of over HK$250 billion (US$32 billion).
Before yesterday the southbound investment has been quite weak since the official launch, with less than 5% of the daily quota being used up during the past few months. But the trend changed after March 27 when the Chinese Securities Regulatory Commission announced that it would allow Mainland China’s mutual funds to buy Hong Kong stocks directly with no requirement of QDII qualification.
On March 30, the China Insurance Regulatory Commission said it would allow insurance money to be invested in Hong Kong’s Growth Enterprise Market (GEM). The combined 15 trillion yuan investable universe of mutual funds and insurance money has encouraged the huge liquidity flow from the Mainland to Hong Kong.
ASSTOCKS data show that on March 27, 95.14% of the daily quota for southbound investment was not used, on March 30, it dropped to 75.64% and hovered around 80% in the next few days. And on April 8, when the Hong Kong stock market reopened after Easter Holiday, the quota was used up, first time since its launch.
Following the rally on April 8, the Hang Seng Index surged by 1465.76 points in just ten minutes from its opening on April 9, but then quickly fell to around 26,800 points in one hour. As of 11:30am, the index rose back to 27,280 points, while the Stock Connect’s southbound quota had only 13.77% remaining.
