Hong Kong-listed shares in mainland companies shot up 6.2 percent on Monday, feeding on expectations that mainland investors would snatch them as China's move to allow direct offshore investment kicks off this week. Heavy buying drove turnover to record levels and pushed blue chips to a record in the final minutes before the session's end.
The Hang Seng Index rose nearly 3 percent, helped by a Wall Street rally on strong US economic figures and an overweight rating by Credit Suisse on Hong Kong. Jiangxi Copper Co Ltd, Aluminium Corp of China (Chalco), and other Chinese shares trading at wide discounts to their mainland-listed, yuan-denominated counterparts soared to records in heavy trade.
"It's all about the floodgates opening from China," said Miles Remington, sales and trading director at BNP Paribas. The China Enterprises index of H shares, or Hong Kong-listed shares in mainland companies, gained sharply for the sixth straight session. The index shot up 811.78 points to end at 13,989.87, just off its intraday record. Its single-day percentage gain was the second-largest so far this year.
The benchmark Hang Seng Index finished up 655.84 points at 23,577.73 on record mainboard turnover of HK$126.3 billion (US $16.2 billion). Brokers and analysts said they expected excitement about China's newest overseas investment scheme to keep the market buoyant in the near-term.
"There should be increasing liquidity coming to Hong Kong and I expect the positive sentiment will spread to other stocks," said Peter So, China strategist at DBS Vickers. Bank of China, the first mainland lender designated to handle retail brokerage transactions under the programme, told Reuters on Friday tens of thousands of mainland investors had already registered for the programme even though applications were not being accepted until Monday.
High expectations for the programme have led two of China's country's top 10 brokerages to apply separately to Beijing for licences, sources familiar with the situation said on Monday. A shares now command a 61 percent weighted average premium to their H-share counterparts. The value of the A-H premium index fell 4.5 percent, marking its biggest drop since the index's early July launch.
Among the large cap H shares, China's top alumina producer Chalco and Jiangxi Copper were the top gainers. Chalco ended up 31.9 percent at HK$21.4, adding HK$20.4 billion to its market value. Its A-share premium stood at 144 percent, down from Friday's 193 percent.
Jiangxi Copper surged 26 percent to HK$19.28 and saw its A-share premium narrow to 122 percent, down from Friday's 155 percent. Independent power producer Datang Power, in its sixth straight session of sharp gains and heavy trade, was close behind with a 15.4 percent gain to HK$9.17.
A batch of other H shares also hit life highs: top mainland life insurer China Life rose 4.5 percent to HK$35.15 and rival Ping An Insurance advanced 7.2 percent to HK$79.40. China Mobile, which is not a dual-listed stock, also set a new milestone to cross the HK$100 mark for the first time. The wireless provider, closing up 4.1 percent to HK$100.60, is seen as a cash-rich, quality play that mainland investors would be keen to own.
China Construction Bank, the country's second-largest lender by assets, raced up 5.1 percent to HK$6.15, having earlier hit a record high. The mainland bank posted a 47 percent jump in first-half profit, boosted by higher fee income and margins.
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