Under 'Connect' scheme, Chinese stock speculation spreads to Hong Kong

Zhou Hei Ya International Holdings

11/04/2017 02:36

SHANGHAI, April 11 (Reuters) - Recent wild rides by China 
companies listed in Hong Kong show that the "Connect" schemes 
which move funds from mainland  markets to Hong Kong's can also 
carry in a different investor culture.  
    Last week, the staid Hong Kong exchange got a dose of the 
kind of speculative "pump and dump" sometimes associated with 
China's retail-driven markets. 
    Hong Kong-listed shares of BBMG  2009.HK , a Beijing-based 
developer and cement maker, jumped as much as 63 percent after 
China said it will build a major economic zone near the Chinese 
capital. 
     Amid the surge, a Morgan Stanley downgrade knocked more 
than 10 percent off the stock's price.   
     Mainland Chinese money was largely responsible for the 
share's rocketing, exchange data showed, as investors took 
advantage of the "Connect" schemes letting them buy Hong Kong 
shares. 
     The BBMG case underscores mainland investors' growing 
influence in the Hong Kong market - which could increase 
pressure on regulators to protect small investors from getting 
hurt by speculative inflows.  
    The Hong Kong Stock Exchange  0388.HK  maintains it can deal 
with any issues. 
     
    LOTS OF TOOLS 
    "The market has some new participants and market dynamics 
may reflect that from time to time," a HKEx spokesman 
said. "Hong Kong has a sound regulatory regime. Regulators of 
the Hong Kong and Mainland markets have a lot of tools and will 
take action if they suspect rule violations." 
     Ashley Alder, chief executive of the Securities and Futures 
Commission - Hong Kong's markets regulator -  said in November 
it had stepped up coordination with the China Securities 
Regulatory Commission. 
    "Cross-border supervision and investigation will become even 
more essential to contain risks to our respective markets as 
they experience even larger cross-border flows," Alder told a 
Thomson Reuters conference. 
    The official Shanghai Securities News last month said 
Shanghai, Shenzhen and Hong Kong exchanges are coordinating 
supervision over illegal trading activities conducted via the 
connect schemes.  urn:newsml:reuters.com:*:nL3N1GZ1L0 
     Linus Yip, Hong Kong-based chief strategist at First 
Shanghai Securities, said he is incorporating the growing 
"southbound" flows from the mainland into his analysis.  
     "The market landscape is changing. Mainland investment 
style and preference is being increasingly felt," Yip said.  
     Hong Hao, chief strategist at BOCOM International, said 
there are concerns about market manipulation schemes. He 
described BBMG's surge as speculative. 
     Hong Kong shares typically trade at discounts to their 
mainland counterparts. Unlike Shanghai and Shenzhen-listed 
stocks, they are not subject to daily limits and can be more 
easily shorted.  
     
    FORGET FUNDAMENTALS 
    On April 5, when BBMG hit a two-year-high in Hong Kong, it 
was the most actively-traded stock by Chinese investors under 
the Connect launched in 2014. The next day, BBMG was the second 
most actively traded stock, trailing only giant HSBC Holdings. 
 0005.HK . 
    In 2015, mainland investors accounted for 22 percent of 
stock trading among overseas investors in Hong Kong, compared 
with 5 percent a decade ago. 
    Chinese investors have spent HK$104 billion ($13.4 
billion)on Hong Kong stocks via the Connect this year, about 65 
percent more than the 55.7 billion yuan ($8.07 billion) that 
moved in the other direction, according to exchange data. 
    BBMG wasn't the first Connect-driven surge of Hong Kong 
share. Chinese selfie app maker Meitu Inc  1357.HK  and a maker 
of Chinese spicy stewed duck neck, Zhou Hei Ya International 
 1458.HK , saw dramatic swings last month.     
    Shanghai-based fund manager Shen Weizheng said he bought 
into BBMG not based on fundamentals, but confidence he could 
resell the shares at a higher price to other mainland investors. 
         
(1 Chinese yuan = 1.1263 Hong Kong dollars) 
($1 = 7.7698 Hong Kong dollars) 
($1 = 6.9020 Chinese yuan) 
 
 (Reporting by Samuel Shen and John Ruwitch; Additional 
reporting by Michelle Price in Hong Kong; Editing by Tony Munroe 
and Richard Borsuk) 
 ((samuel.shen@thomsonreuters.com;  +86 21 6104 1789; Reuters 
Messaging: samuel.shen.thomsonreuters.com@reuters.net)) 
 
Keywords: CHINA MARKETS/CONNECT