Hong Kong Equities Soar as Cash Flees Mainland
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Hong Kong’s stock market rose to a 52-week high as more Chinese investors move money out of mainland markets where assets are considered higher risk.
The Hang Seng index of mainland companies with a listing in the Hong Kong markets rose 5.8% on Wednesday, the sharpest rise in prices since December 2011. Closing at over 26,000 points, the Hang Seng index ended trading at its highest point since May 2008, although still around 16% below its all-time high price in October of 2007.
Hong Kong’s stock market rose to a 52-week high as more Chinese investors move money out of mainland markets where assets are considered higher risk.
The Hang Seng index of mainland companies with a listing in the Hong Kong markets rose 5.8% on Wednesday, the sharpest rise in prices since December 2011. Closing at over 26,000 points, the Hang Seng index ended trading at its highest point since May 2008, although still around 16% below its all-time high price in October of 2007.
The Hang Seng is up 16.5% for the last 12 months, although it saw a steep downturn in early March amidst concerns that China’s growth was cooling at a faster-than-expected rate, and the mainland would fail to meet the government’s 7% GDP growth target for 2015.
The caution in Hong Kong has not spilled over to the mainland, where stocks have continued to soar since spiking in late November of last year. Year to date the Dow Jones Shanghai index is up over 24% and has doubled in value in the last year. Some commentators have expressed concerns that the demand from unsophisticated Chinese investors who are seeking a safe haven from real estate are driving the stock rally, as home prices in the mainland see declines exceeding 8% in the largest Chinese cities.
Asia Stock Strength
The Hang Seng and Shanghai indices have been two of many strong performers in Asia, as stocks see broad rises throughout the continent. In Japan, the Nikkei 225 has gained over 30% in the past year as quantitative easing fuels stocks in that country, despite falling into a recession in late 2014 after a sales tax hike caused Japanese consumers to pull back on consumption.
Lower performance has come to Korea’s KOSPI composite index, which is nonetheless up over 7% for 2015 amidst improving valuation forecasts. The regional MSCI Asia Pacific index is near its 52-week high, and has risen over 8% so far for 2015.
Divergent Reality
The share price gains have not necessarily reflected many analysts’ outlook for the region, with some analysts warning of a “divergent reality” between the economic conditions on the ground and stock market performance. In China, economic indicators suggest manufacturing and service demand are falling, with the China PMI indicating stagnation for the first quarter of 2015. In South Korea, exports have continued to fall throughout 2015 despite several major recent free trade agreements with the European Union and the U.S., while investment from Japanese companies in the local economy has fallen.
People’s Bank of China Governor Zhou Xiaochuan recently admitted his country’s economy was weakening, while also hinting that the PBOC may lower interest rates or initiate a quantitative easing program to get the country’s growth rate to reaccelerate.
