Foreign appetite for Chinese stocks has been increasing so fast that cross-border trading in a number of companies through the Stock Connect schemes linking the mainland Chinese and Hong Kong markets has either been suspended, or will be suspended soon, as limits on overseas ownership are reached.
Midea Group, China’s biggest household appliances maker, became off limits for global fund managers on Tuesday, after the combined foreign holding hit 28 per cent of its outstanding shares, according to a statement by the Hong Kong exchange. Four other companies, including furniture maker Suofeiya Home Collection and web security software firm Venustech Group, are also approaching the cap, which is set by Chinese regulators.
Overseas traders have been increasing their holdings of mainland China-traded shares amid signs of a bull market, with the benchmark Shanghai Composite Index rising to a two-year high this week, and trading values surging to their highest in five years. A continued recovery in China’s economy and optimism about further policy loosening – contrasted by the US’s struggle to combat the resurgence of the coronavirus after lockdowns were lifted – are stoking the buying spree.
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“The valuations of Chinese publicly traded companies are generally at a relatively low level, and the opening of the capital market has been deepening,” said Yan Xiang, a strategist at Guosen Securities. “Therefore, foreign investors will continue to increase their allocations for the A-share market,” he said, referring to mainland China-traded stocks.
Foreign investors have bought Chinese stocks worth a combined 1.1 trillion yuan (US$156.6 billion) through the Stock Connect programmes with Hong Kong in the first half of the year, an increase of 12 per cent from the end of 2019. Most of their investments were made in the consumer, biopharmaceutical and home appliances sectors.
Meanwhile, in Hong Kong, the city’s monetary authority stepped into the financial markets to weaken the local currency on Tuesday, the 24th time this year it has had to rein in the effects of hot money. Hong Kong continues to defy doomsday speculation of capital flight, as global investors position themselves for more than 20 initial public offerings in the city this month.
Midea’s shares added 0.6 per cent to 64.38 yuan on Tuesday, taking its gains so far this year to 11 per cent. Its full-year profit is expected to rise 6.1 per cent to 25.7 billion yuan in 2020, according to financial data provider Shanghai DZH. Midea’s first-half net income dropped 22 per cent from a year earlier, and its interim result is due on August 31.
The foreign ownership of Suofeiya Home, meanwhile, has reached 27 per cent, and that of Venustech is at 26.7 per cent. Overseas investors have a combined 26.1 per cent stake in Hangzhou Tigermed Consulting, which offers clinical research services to drug makers, and software developer Glodon, respectively.
This is not the first time that the foreign ownership cap has been triggered and the buying of Chinese stocks has been temporarily suspended. Han’s Laser Technology Industry Group was tentatively removed from the buying list in the Stock Connect programme last year.
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