Stock Maniacs Rapidly Exhausting Investment Quotas as Govt Expected to Invest Pension Funds

Social mood is rising into extreme territory. Investors arbitraging between overpriced Mainland A-shares and fairly priced Hong Kong H-shares are one source of buying, but the main fuel for the latest rally is investors' belief that they cannot lose——because the Chinese government itself will invest more money into equities. Hong Kong residents are now consumed by the stock market, neglecting their jobs in order to trade stocks, while those with little to no money or investing experience, and buying and selling. Mainland investors are piling into concept stocks, which pretty describes every stock in the market. Well before this bubble was underway, there was no shortage of concepts, such as stocks benefiting from increased trade with North Korea, stocks benefiting from the government's construction in the South China Sea, the "Internet of Things", nuclear power, high speed rail, the new Silk Road, etc. etc. Today, however, when these "concepts" are splashed in the financial pages, it leads to huge rallies in the related equities. Behind it all is the Chinese government, worried about a contracting real estate market, bad debts, capital outflows, looking for a way to attract capital and boost the public's mood. For the moment, they have found it.


SCMP: Bigger quotas seen for Hong Kong-Shanghai stock link after record week for Hang Seng

The city's stock exchange chief yesterday flagged a possible increase of more than 30 per cent in the quota for cross-border share trading after record turnover saw the cap on mainland purchases of Hong Kong stocks being busted on two of the past three days.

Fund managers have been pressing for the quotas under the through train scheme to be raised, fearing the allocations will be exhausted within weeks as the market rally heats up.

There is a daily quota on cross border trading, but also a total quote. After this week, about 25% of the Shanghai to HK quota has been filled, and about 40% of the HK to Shanghai quota has been filled. The quota can decline if investors sell, but for the moment that isn't happening. Chinese investors hit the limit on the daily quote twice last week, and if the daily limit were hit every day, the remaining quota space could be filled in less than a month of trading.

Stock maniacs are everywhere, even in Sai Kung country park

Sitting in the middle of a seaside town of about 10 houses was the village's only grocery store-cum-tea-house - not exactly a store but the home of an old couple who also run a business.

In summer, they rent kayaks, showers and lockers to tourists. On quieter days they prepare sea urchin fried rice and oyster pancakes for hungry hikers.

Yesterday was a quiet one. On the patio all the tables and chairs were stacked up with the red and white umbrellas lying beside them.

My husband and I were the only visitors in the store.

No one came to serve us. Inside the house, the television was blaring about the performance of individual stocks. The old lady, who usually does the cooking, had her eyes fixed on the television.

Finally, her husband came to serve us. We ordered an oyster pancake and noodles with ham. The old lady rushed into the kitchen to cook for us.

Within 10 minutes, she was back in her seat busy talking to her banker on the phone about her securities account.

Here's your social mood summed up:

Don't write the surf coach off as a joke. The current rally is driven largely by Beijing's decision to allow public funds to invest in the Hong Kong stock market. The official signal is clear; mainland liquidity is here and the crowd followed.

Therefore, if you want to make quick money, you should perhaps learn to think like a mainland investor. Any Shanghai or Chengdu investor will tell you that lesson No1 is to forget all the talk about fundamentals.

And the surfer had a proven success from his trade.

"How much did you gain?" the old woman asked.

"About 2.4 per cent in two hours. Not bad," said the surfer with a big smile. "It's nothing compared to yours, but I will build on it."

"Congratulations! Thanks to China!" the old woman said.

"Absolutely, everyone is so happy," said the surfer toasting with his beer.

The bull market party has just begun

Chinese authorities will need some time to revise the rules after the China Securities Regulatory Commission allowed domestic mutual funds to buy H shares. A massive inflow of mainland capital will be seen.

Currently, many funds with Qualified Domestic Institutional Investor quota have already used up their quotas. They have been focusing on arbitrage of dual-listed stocks with wide price gaps. A considerable portion of that mainland money has flowed into H shares through the underground banking system.

Hong Kong Exchanges and Clearing (00388.HK) has become one of the biggest beneficiaries of the active trade. Its share price might hit its peak after the government unveiled the Shenzhen-Hong Kong Stock Connect. It is said that HKEx might merge with its mainland rivals for a public listing, which would create the world’s largest and most active exchange.

Shanghai and Shenzhen’s combined market turnover has reached 1.5 trillion yuan (US$241.5 billion). That would boost commission revenue and the bottom line for brokerages. There are also long queues for public listing on the mainland, which would benefit a number of brokerages like China Galaxy Securities (06881.HK).

Investors should closely watch brokerage plays that focus on cross-border stock trading. Southbound funds with a size of over 100 billion yuan are expected to come into place within this month.

Chinese retail investors love to speculate on H shares which have no up limit. These include brokerage plays like Guotai Junan (01788.HK), Haitong International (00665.HK) and Shenyin Wanguo HK (00218.HK). Therefore, the influx will also benefit local brokerages that expand into the mainland market.

FT: China investors: Stock market fever

Retail money is pouring into tech shares and other ‘concepts’ — and the buoyant mood is spreading

Sun Shuming could barely contain his joy. With one hand holding aloft a glass of champagne and the other making a thumbs-up sign, Mr Sun beamed as a bank of cameramen snapped away on the floor of the Hong Kong stock exchange. Shares in GF Securities, the brokerage he runs, had just jumped 40 per cent within moments of going public on Friday morning.

The debut of GF Securities could not have been better timed, coming at the end of a week of record trading in Hong Kong. The sudden arrival of billions of dollars from mainland Chinese investors pushed the market to its highest in more than seven years, while volumes on the exchange smashed all records.

...Two state-owned train manufacturers, CSR Corp and CNR Corp, have emerged as darlings for both these concepts. These companies have seen their Shanghai-listed shares more than triple since the start of 2015, and now trade above 50 times earnings.

Reuters: China stocks edge up on expansion of pension fund's investment scope

The government announced late on Wednesday that the fund, which backs China's pension system, will be allowed to buy more local government debt, investment trusts and shares in state-owned companies.

Analysts said the move is expected to channel more money into the stock market, and help reduce financial risks accumulated in massive local government borrowings.