Article/Hong Hao, columnist of Sina Financial Opinion Leader Column (WeChat official account kopleader)
All kinds of evidence show that the term "Hong Kong A-share" is not true. However, the market interconnection between Shanghai and Hong Kong is an irreversible trend of the times. If the correlation between A-share and Hong Kong stock indexes continues to rise, the biggest risk in Hong Kong may be the bursting of A-share bubble in the second half of the year.
What is the biggest risk of Hong Kong stocks in the second half of the year Hong Kong shares soared after Easter, seemingly replicating the A-share market since November last year. And the discussion on "Hong Kong A-share" has also intensified. Many analysts believe that such a sharp rise in Hong Kong shares is due to the mainland's capital moving southward to trade in A-share like speculation. I can't agree with that.
The assertion that "Hong Kong A-share" is just due to the simultaneous rise of the two markets lacks logical support. Just as two simultaneous events do not necessarily cause and effect each other, they may just be coincidence - just like in the 1920s, the relationship between women's skirt corners on Wall Street becoming shorter and shorter and the stock market gradually climbing cannot stand scrutiny.
Of course, the interconnection of Shanghai and Hong Kong markets is an irreversible trend of the times. Hong Kong Stock Exchange The vision of the "common market" between Shanghai and Hong Kong described by CEO Li Xiaojia seems to better describe the relationship between Hong Kong shares and A-shares.
According to the design of this path, "the regulators of the two places will jointly supervise, and the funds from the mainland and the international market can converge and interact in the common market, which will promote the gradual integration of the mainland and the international market. Both the mainland capital market products that are of interest to international investors and the international products that mainland investors need can be traded in the common market, allowing mainland investors to diversify their investment and hedge international price risks ".
For a long time, the "pricing power" of European and American investors in the Hong Kong stock market has always been dominant, and Hong Kong has always been used to express these "crooked nuts" 'views on market risk - when the global market falls, Hong Kong shares are always the first to be sold due to good liquidity. This investor behavior has led to the fact that although Hong Kong market is a mature market, its trading characteristics are more like an emerging market. along with Chinese capital Gradually and deeply participate in the Hong Kong market, and Hong Kong's role in the global portfolio should be improved.
With the continuous entry of mainland funds, the composition of investors and their market behavior will change to a certain extent. On the eve of Easter, a friend of mine, a mainland feng shui master, went to Hong Kong to see the feng shui of his new home for a mainland millionaire.
Curious, I couldn't help asking a friend: "This gentleman's luxury house is backed by mountains and faces water. At the same time, Hong Kong developers must have carefully considered the factors of feng shui when designing houses. As a stock market person, what use can I use in the past?".
After we met and exchanged greetings for a few words, it seems that the rich man is not in a hurry to ask my feng shui master friend about his mansion's feng shui affairs. We sat on the balcony, looking at the sailing in Victoria Harbor, but began to discuss the stock market.
Rich people are familiar with individual stocks listed in Hong Kong. However, his problems always focus on the technical figure of the stock, the amount of capital, the concentration of the main shareholders or the increase of the management's holdings. Few of them talk about the growth potential of the company's sales and profits, the company's development strategy, market opportunities and the quality of the management, which are more concerned by western institutional investors. I gradually realized that this meeting was more about investment consulting than feng shui.
During the exchange, we talked about many issues of "A share Hong Kong share". I think this proposition can be demonstrated from the index correlation, trading strategies, valuation changes and capital flows of the two markets.
From the index correlation of the HSI, Shanghai Composite Index and S&P over the past 20 years, the correlation between the HSI and S&P has been relatively stable. Some experts will point out that since the 2008 global financial crisis, the correlation between the HSI and the US market has been trending downward. However, it is worth noting that during a crisis, the index correlation of all markets will generally reach its highest point.
This is mainly because when the market is in crisis, all risky assets will encounter a wave of selling. How can the eggs be exhausted under the so-called collapse? Therefore, the high correlation between the Hang Seng Index and S&P due to the crisis at the end of 2008, and the trend decline of index correlation caused by the subsequent market easing policies of various countries, do not mean that the Hong Kong market is less and less affected by the United States market.
In the past few years, the Hong Kong market has never been spared when the United States market suffered a sell-off due to risk aversion. For example, when successive rounds of QE of the Federal Reserve ended, monetary easing failed to take hold, and when the US treasury bond rating was downgraded in August 2011, the Hong Kong market experienced a sharp decline, even an extreme situation of more than 1000 points in a single day. And the experience of the mainland market is almost the same.
The correlation between Shanghai and Hong Kong indexes has indeed increased. At the end of 2001, China joined the WTO [Weibo] It has been gradually strengthened since then, and further deepened after the 2008 global financial crisis due to China's "four trillion" stimulus policy.
Statistics show that since 2002, the proportion of sales revenue in mainland China of Hong Kong listed companies has increased from about 5% to 66% in 2014. In other words, many listed companies in Hong Kong now derive most of their sales revenue from China. Such close business contacts have developed so deeply in the past decade, and it should not be an unexpected event that the index correlation between the two markets began to rise. It is worth emphasizing that the increase in the correlation between the two market indexes is a gradual trend for more than ten years, rather than a new thing emerging after the recent mad bull market of A-shares.
After the market soared, the trading strategies of the two markets have gradually changed. The three views of investors were quickly overturned by various "miracles" recently appearing in the A-share market: for example, after the merger of North South Railway Vehicles into the "China Magic Car", its market value was larger than that of Boeing; Most of the profits of Quantong Education come from stock speculation. The profits of its main business are only a few million, but its market value is larger than that of the old educational institution "New Oriental"; However, Storm Technology, a company that could not successfully list in the United States, returned to A-share market, but pulled more than 30 trading limit boards in a row, becoming a veritable A-share "trading limit king" and so on.
With the increasing participation of mainland funds in Hong Kong stocks, the opening of the "Hong Kong Stock Connect" to mainland public offering funds, and the introduction of new regulations such as social security funds can participate in the trading of Hong Kong GEM stocks, the market daydreams about the potential of small cap stocks in Hong Kong. It is worth noting that Hong Kong's GEM index has actually performed better than the mainland's GEM index since April this year, while Hong Kong's Hang Seng State owned enterprise index Its performance is basically equivalent to that of A50 large cap stock index.
At the same time, the trading proportion of small and medium-sized stocks in Hong Kong market rose. However, in the upward trend of the market, small cap stocks, as a high beta market sector, will generally benefit more than other sectors. At the same time, the small cap effect and price momentum effect of small cap stocks in the A-share market are not unique to A-shares. The formation of these effects is mainly because small cap investments generally need to bear greater risks, and the returns are generally matched. These effects have been systematically demonstrated in the American market more than 30 years ago by professors Fama and French of the University of Chicago Business School.
What is the biggest risk of Hong Kong stocks in the second half of the year Therefore, the strong upward trend of small cap stocks in Hong Kong due to the beta effect in the rising market is not a good evidence of "A-share Hong Kong stocks". The similar effect of small cap stocks has been quantitatively proved in other markets. As for the unique methods of operating and market value management of A-shares, they are actually manipulation of market prices.
These illegal acts are called "pump and dump" on Wall Street and were banned in mature markets decades ago, which is not something to be proud of. Today, the Black Swan incident, in which the share price of Hanergy, a monster stock in the Hong Kong market, was almost halved due to the investigation by the regulatory authorities within 24 minutes, should overturn the confidence of many people who are keen on market value management that market prices can be manipulated wantonly.
The trading volume of the Hang Seng Index has indeed risen sharply since March. The average trading volume per 23 trading days soared from HK $54 billion at the end of March to 123 billion on May 15, surpassing the peak level of 1100 in 2007.
However, the increase in trading volume is not necessarily due to the "North to South Water Diversion". Although public funds can now increase their positions in Hong Kong shares through the "Shanghai Hong Kong Stock Connect" rather than the QDII quota, these funds will still be restricted by their high positions and the established investment articles. Since the opening of the mechanism, the quota for southward travel has only been used up in a few days, and the balance in most of the rest of the time is generally about 80%. At the same time, the newly established public offering funds investing in Hong Kong shares will complete the establishment, capital raising and position building within one and a half months, so it is unlikely that they will go south immediately.
In addition, the Hong Kong Monetary Authority has repeatedly injected capital into the market to stabilize the pressure of Hong Kong dollar appreciation. These seem to indicate that funds should flow into the Hong Kong market from other channels, such as overseas markets. In other words, from the perspective of capital flow, we have not seen large-scale cross-border capital flow southward.
On the Bloomberg terminal, the code of the balance of the "Shanghai Hong Kong Stock Connect" going north is NB (Northbound), and the code of the balance of the "Shanghai Hong Kong Stock Connect" going south is SB (Southbound), which seems to make a real joke about the status of the mechanism unintentionally. Therefore, the data of capital flow does not show the process of so-called "Hong Kong A-share". However, Hong Kong shares still have about 1/3 valuation discount compared with A-shares.
In conclusion, The increasingly close index correlation between Shanghai and Hong Kong markets is not a new event after the A-share boom, but a gradual process since China's accession to the WTO; The beta effect of small cap stocks in Hong Kong cannot be completely attributed to the strength of small cap stocks in A shares.
In fact, the growth of Hong Kong GEM since April is stronger than the A-share GEM index; Although the trading volume of the Hong Kong market has increased significantly, the quota of the "Shanghai Hong Kong Stock Connect" has not been used up in most of the time period, and the valuation of Hong Kong shares still has a large discount to A-shares. This series of arguments shows that the term "Hong Kong A-share" is not true.
If the correlation between A-share and Hong Kong stock indexes continues to rise, the biggest risk in Hong Kong may be the bursting of A-share bubble in the second half of the year.
Looking back at the first half of this year, the main reason why Hong Kong shares lagged far behind A-shares was that the market was worried about the interest rate increase of the Federal Reserve, which made investors worried that funds would flow back to the United States from emerging countries. Tight liquidity, rising interest rates and the continued slowdown of China's economic growth have led international capital to be cautious about the Hong Kong market. Now, things have begun to change.
The US economy seems to be commendable. The side effect of the rise of the US dollar is gradually reflected in the performance of American enterprises. The sharp fall in the prices of energy and other commodities has greatly reduced the inflationary pressure. Therefore, the chances of the Federal Reserve raising interest rates at the end of June have been greatly reduced. After two RRR cuts and three interest rate cuts, the People's Bank of China [Weibo] There are also a series of traditional and innovative monetary policy tools that can be used. In fact, China's monetary policy is very "loose".
Judging from various economic data in April, China's economy is still not improving. Although the interbank interest rate has fallen rapidly, China's real interest rate is still high after taking into account the weak inflation momentum of consumer goods and house prices. Therefore, the continued easing of monetary policy will be a high probability event, and China's interest rate level still has a lot of room for decline. Therefore, it can be predicted that the Hong Kong market should be supported under the general environment of loose internal and external liquidity.
After Shanghai Stock Exchange excluded bank shares, the average P/E ratio has exceeded 50 times, and the overall average valuation of GEM has reached 116 times. When the valuation level has reached such an extreme high, the A-share market will become highly sensitive. Any slight change, whether news, market rumors or policy implementation, may trigger a large-scale callback. If so, although Hong Kong shares have valuation advantages, I am afraid it is difficult to be independent.
After listening to my talk about the market, my rich friends were very educated and began to share his investment strategy with me. "Since the cost of financing in Hong Kong is so low, I have pledged a lot of stocks to banks with my hands. Then I will transfer the funds back to China to buy those sectors and individual stocks with the best price momentum," he said lightly.
I immediately opened my mind - the original funds can be operated in this way. In this way, after Hanergy plummeted in the morning trading session on Wednesday, A shares showed a huge reversal in the afternoon trading, which seems to explain. Hanergy, a speculative group in the stock, is closely connected with the domestic market. Hanergy's slump must have generated a lot of demand for position covering.
And speculators had to sell some A-shares they held after the crash in exchange for liquidity to cover their positions. It is no wonder that the consumption of northbound NB continues to be much higher than that of southbound SB. Since more capital flows from the south to the north than from the north to the south, the recent A-share market may be called "A-share Hong Kong style". Hanergy will become a landmark event, ringing the alarm for speculators who believe that the GEM circulation is small and the stock price can be operated arbitrarily.
(The author introduces: Managing Director and Chief Strategist of BOCOM International. CFA, graduated from Beijing University of International Business and Economics and the University of New South Wales in Australia.)
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