Cheap Hong Kong stocks gain traction with Chinese investors

Average daily inflows through HK exchange links swelled to the highest.

According to a report from Bloomberg, cheap Hong Kong equities are suddenly back in vogue with Chinese investors. As tightening capital controls turn the city’s stock market into one of the few Beijing-approved destinations for offshore investment, mainland traders are piling into shares that have long been priced at much lower levels than their counterparts in China. Average daily inflows through Hong Kong’s exchange links swelled to the highest since September this month, while the city’s Hang Seng China Enterprises Index is the best performer worldwide this week.

The influx of mainland money has helped narrow valuation gaps between the markets, which persisted for more than two years despite growing cross-border connectivity. Even so, dual-listed stocks remain 33 percent cheaper on average in Hong Kong. Pictet Asset Management and East Capital say the city’s re-rating has further to go.

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