Hong Kong stocks stampeded their way into a bull market Monday, joining the US and other global exchanges that clawed their way out of bear territory triggered by the coronavirus.
How did the Hong Kong bulls wrest control from the bears in just over three months?
Investors can thank record mainland inflows, sexy new listings, massive global stimulus, and positive data signalling recovery in China, all of which gave them a much-needed confidence boost, analysts said. Traders also set aside worries about Beijing’s tightened grip over the city. And there was also some good-ole bravery – as traders bet the worst was behind and decided it was time to bargain hunt.
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Meanwhile, the Shanghai Composite Index saw its biggest one-day percentage gain since the volatile summer of 2015, when the stock market bubble burst.
Hong Kong’s Hang Seng Index on Monday gained a whopping 3.8 per cent – just shy of 1,000 points – to 26,339.16, led by information technology and consumer staples stocks. That surge was enough to power it into a bull market.
“We have entered a bull market. When the markets try to turn from pessimism to optimism, from a bear to bull, the turnover for those couple of days is huge. Today is the day,” said Louis Tse Ming-kwong, managing director of VC Asset Management.
“Today’s turnover is such a record. We were encouraged by the Chinese markets in the north. Today everybody is happy. But we aren’t out of the woods yet. Covid-19 is still going on, and the US is still trying to penalise China.”
The benchmark tumbled into a bear market – defined as a 20 per cent drop from a recent high – on March 13, but continued to fall to its lowest level on March 23, when it hit 21,696.13.
What gave it the big push downhill was the coronavirus spreading from China to the rest of the world, and in the process upending global stock markets and supply chains.
To be in a bull market, the Hang Seng Index needed to rise 20 per cent from that March 23 hole. On the way to getting to Monday, it gained US$1.1 trillion in market capitalisation.
But Hong Kong traders did not celebrate alone.
The Shanghai Composite Index shot up 5.7 per cent on Monday, just a hair less than its 5.8 per cent run-up on July 2015, when China markets were experiencing extreme turbulence that would lead to a more than US$3.4 trillion market cap wipeout.
The market enthusiasm followed a front-page editorial in the state-owned newspaper China Securities Journal on Monday that said nurturing a “healthy bull market” after the pandemic is crucial to the economy. Retail investors rushed in.
While there were some murmurs in trading circles Monday of a possible bubble forming in China with the rapid gains of late, traders pointed out that stocks were trading at nearly 5,200 in June 2015, far higher than Monday’s close at 3,332.88.
“It may be too early to say it is a bubble, as in terms of valuation, A shares are still reasonable,” said Kenny Wen, wealth management strategist at Everbright Sun Hung Kai.
A steady stream of positive data has been coming out of China, signalling the economy is steadily recovering from the devastation of the coronavirus, which exploded in the city of Wuhan in January, leading to unprecedented lockdowns and business closures. The positive signals have boosted not only mainland stocks, but also the Hang Seng, where more than half of the market capitalisation is made up of mainland companies. In addition, mainland investors have been buying record amounts of Hong Kong stocks, pushing up the benchmark and overall sentiment.
“The transaction volume has increased sharply. We see both domestic retail investors and global investors rushing into A shares,” Wen said.
Hong Kong traders saw an opportunity when stocks were battered by the virus. Starting in late March, they have piled into new technology stocks, like gaming giant Tencent and online medical consulting platform Ping An Good Doctor.
The virus came after months-long protests in the city that turned violent at times, as well as the US-China trade war. The triple whammy has the city stuck in a nasty recession.
But, as the world’s governments and central banks rushed in with huge stimulative fiscal and monetary lifelines, sentiment has improved. Global fund managers are now bullish on Hong Kong stocks in the second half of 2020. A stream of initial public offerings are in the pipeline, and there is much anticipation that more US-listed Chinese companies will do secondary listings, following Alibaba, NetEase and JD.com.
On Monday Chinese chip maker Semiconductor Manufacturing International Corp. (SMIC) was one of the big winners in Hong Kong. It shot up nearly 21 per cent, marking its fourth straight session of gains, as investors snapped up shares ahead of its planned listing in Shanghai’s Star Market.
Chinese developers also saw big gains: Country Garden Holdings shot up 7.5 per cent, China Evergrande climbed 8.5 per cent, and China Vanke jumped 7.8 per cent. Mid-cap China Aoyuan Group, which focuses on property in the Greater Bay Area, gained 6.7 per cent. They have been rallying on strong June sales and upbeat forecasts for the second half by some analysts.
Top blue chip gainers were Geely Automobile, which zoomed up nearly 16 per cent, China Life shot up 14.4 per cent and China Unicom, which gained about 10 per cent.
Financial Street Property Company, a property manager that debuted in Hong Kong on Monday, surged by 28.5 per cent.
On the mainland, Chinese brokerage stocks led the gains, with the sector rising 9.4 per cent according to a gauge by Xuangubao.com. Shanghai-listed Zhongtai Securities touched the upper trading limit of 10 per cent.
Stocks rose elsewhere in the Asia region.
Tokyo’s Nikkei 225 Index increased 1.8 per cent, while South Korea’s Kospi Index advanced 1.7 per cent.
A total of 11 companies, including Financial Street Property, will debut in Hong Kong this week, in what is expected to be another confidence boost for the market.
Chinese property management firm Redsun Services Group will start trading on Tuesday, while Malaysia-based imprintable apparel provider MBV International and Chinese pharmaceutical company Shenzhen Hepalink Pharmaceutical Group will debut on Wednesday.
Seven IPOs will start trading on Hong Kong’s main board on Friday, including biotech firm Immunitech Biopharm and property management company Zhenro Services Group, while wire and cable manufacturer China Saftower International Holding Group will debut on the GEM board.
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