Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your experience. Save up to 40% More details

Stock bubble worries push Chinese investors from home to Hong Kong

Stock MarketsJan 22, 2021 03:00AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
© Reuters.

By Luoyan Liu and Andrew Galbraith

SHANGHAI (Reuters) - As China's blue-chip index approaches an all-time high, growing fears about bubbles developing in some parts of the country's stock market are prodding some investors to seek bargains in Hong Kong.

Retail investors have poured money into stocks via mutual funds, pushing valuations in sectors such as consumer, healthcare and new energy to multi-year or even record levels.

For instance, the CSI new energy index has climbed 15% so far this year, after more than doubling in 2020, thanks in part to China's carbon neutrality pledge.

(Graphic: China's new energy, healthcare and consumer stocks lead gains as the country's blue--chip index nears a record high,'s%20new%20energy%20healthcare%20and%20consumer%20stocks%20lead%20gains%20as%20the%20country's%20blue--chip%20index%20nears%20a%20record%20high.jpg) (Graphic: Valuations of China's stock market darlings surge,'s%20stock%20market%20darlings%20surge.jpg)

"There are big bubbles in consumer, health care and liquor stocks, with valuations of some of these shares exceeding their previous record highs," said Dong Baozhen, chairman of Beijing-based private securities fund Lingtong Shengtai Investment Management.

"Their rally has nothing to do with fundamentals now and poses huge risks for investors," he added.

In the latest example of retail frenzy, a Chinese mutual fund attracted a record $37 billion worth of investor subscriptions on the first day of sales.

(Graphic: China's mutual fund industry grows rapidly,'s%20mutual%20fund%20industry%20grows%20rapidly.jpg)

The rise in stock prices has been fuelled by foreign and domestic money, as Chinese authorities unleashed massive stimulus to deal with the blow from the COVID-19 pandemic and the country's economy recovered faster than others.

As worries increase over frothy valuations, some investors are turning to cheaper Chinese shares listed in Hong Kong, particularly as U.S. exchanges delist these firms and American investors are forced to offload their shares.

"The (U.S.) bans actually tell people what good assets are in Hong Kong," said Xia Tian, managing director at Shanghai-based asset management firm Minvest.

Investor buying via Stock Connect from the mainland to Hong Kong hit a record high of HK$26.6 billion ($3.43 billion) on Tuesday, and the total southbound purchases in the new year hit HK$221.8 billion as of Thursday, according to exchange data.

The Stock Connect scheme gives investors access to both markets when investing in A-shares in the mainland and H-shares in Hong Kong.

Morgan Stanley (NYSE:MS) reckons the robust flows into Hong Kong owe to mainland policymakers' encouragement of outbound investment and an elevated premium of domestic A-shares over the Hong Kong-listed H-shares. Companies' A-shares listed in China are currently trading at a more than 30% premium over their Hong Kong-listed shares.

(Graphic: Mainland investors hunt for bargains in Hong Kong,


The rally in China's A-share market has also been driven by foreign investment. As of Thursday, foreign investors had purchased a total of 48.7 billion yuan ($7.53 billion) worth of A-shares via the Stock Connect this year, which is already a fifth of what they bought in 2020.

UBS expects flows of 200 billion yuan into the A-share market in 2021, citing improvement in China's legal protection for investors, better information disclosure by major shareholders and more capable leading firms in various industries.

(Graphic: Foreign investors continued to buy A-shares in 2020,

Some investors believe the exuberance onshore is justified due to China's solid economic recovery, continued policy support and further opening up of its capital markets.

"There is no frothiness in leading large-cap stocks, seen as safer bets as China pushes forward with registration-based IPO reforms in the market," said Wang Mingli, executive director of Youpu Investment, a Shanghai-based private securities fund.

"Investors would come back even later if they reduce exposure for now as there are few options out there that represent the country's future economic development," he added.

($1 = 6.4676 Chinese yuan)

($1 = 7.7517 Hong Kong dollars)

Stock bubble worries push Chinese investors from home to Hong Kong

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
Sign up with Email