As global and Asian emerging markets have jumped to new record highs, Hong Kong has been leading the charge. The Hang Seng index rocketed by 25% in the third quarter, its best quarterly showing since 1999, eclipsing the 27,000 level and propelling the market’s capitalisation above 20 trillion Hong Kong dollars, or $2.6trn, for the first time. Investors seeking a play on China via Hong Kong-listed mainland firms – where valuations are about half those on the mainland’s domestic market – have underpinned gains: the H-shares index of Hong Kong-listed Chinese companies gained 42% between June and September.
But the major impetus stems from the prospect of money from mainland China pouring in now that Chinese citizens will be allowed to invest in Hong Kong stocks. There will initially be a quota imposed on such investments. However, investors reckon that as controls are gradually eased, more of Chinese households’ $2.3trn of savings will arrive; William Liu of CLSA expects as much as $45bn in the next 12 months. China’s newly-established state investment company is likely to allocate at least $2.2bn of the $200bn it will manage to Hong Kong stocks, according to Citigroup’s Joe Lo. With all this liquidity expected, the Hang Seng index could well shoot up to 30,000 “very soon”, says Hugh Young of Aberdeen Asset Management Asia.