Chinese stocks traded in Hong Kong rose to their highest close in more than three years amid speculation the government will further ease monetary policy to support a slowing economy.
Mainland developers and financial companies jumped, with China Vanke Co. increasing 11 percent and People’s Insurance Company (Group) of China Ltd. reaching a one-year high. CSR Corp. and China CNR Corp. soared at least 16 percent, extending their Dec. 31 surge after the train builders announced a merger agreement. Kaisa Group Holdings Ltd. remained suspended after the property developer defaulted on a $52 million loan.
The opening up of the stock market connection between Shanghai and Hong Kong in the fourth quarter has acted as a catalyst for investments flows into mainland China. The market was depressed, valuations are still attractive and the promise of additional flows kick started investment demand. The underperformance of the property sector over the same period has acted as an additional catalyst for domestic investors to diversify their exposure.
A number of financial sector shares have performed spectacularly. Citic Securities for example rallied from CNY 12 in late October to hit CNY35 last week.
To date the vast majority of flows through the stock market connection have been from Hong Kong to China. However, this may be about to change. As the chart of Citic Securities exemplifies, an impressive overextension relative to the trend mean is evident. By contrast the Hong Kong Hang Seng China Enterprises Index which is heavily weighted by financial shares has been relatively quiet. It is all the more notable therefore that on the first day of trading in 2015, it is breaking out of a three-year range.
A click through of the constituents of the Index would really be time well spent since such a high degree of commonality is evident with just about every bank, insurance and brokerage share breaking out. Hong Kong was held back by the student protests in 2014 but could be about to play catch up in 2015.
China Construction Bank and Minsheng Bank are extending their breakouts.
China Life Insurance is extending its breakout.
Haitong Securities partially unwound its overextension and rallied well today.