HONG KONG: The Hong Kong-to-Shanghai price convergence trade has never been more popular with stock investors.
Net purchases of Hong Kong shares through the city’s mainland exchange link surpassed the daily record within the first half hour of trading Wednesday. Shanghai was poised for the opposite milestone, with foreign investors dumping the most equities since the cross-border program began in November.
With China’s world-beating stock rally sending valuations to an almost five-year high, the exchange link flows signal price gaps between shares listed in both cities are finally becoming too wide for investors to ignore. Mainland investment in Hong Kong jumped after China’s securities regulator broadened funds’ access to the shares in March, and HSBC Holdings says more policy changes to encourage use of the link are on the way.
“There’s an arbitrage opportunity, that’s for sure,” Bernard Aw, Singapore-based market strategist at IG Ltd., said by phone. “I see the rally going further in H-shares. There’s pent-up demand after the long Easter break.”
The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong surged 4.7 percent as early afternoon on . Wednesday, compared with a 0.6 percent gain for the Shanghai Composite Index. Hong Kong markets had been closed the past three days for holidays, with the mainland benchmark gauge climbing 3.5 percent in that span.
