What happened in China this week:
Hong Kong Stocks Surge 7% This Week
HKEX Revenue Declines 6% Yet Surpasses Expectations, Shares Soar 15% This Week
TikTok to Fight US Ban in Court, Prefers Shutdown Over Sale
Alibaba Acquires Stake in Ably, Expanding Footprint in South Korea
Huawei Smartphone Sales Rose 70% in 1Q24; Lenovo Extends Global PC Leadership
#1 Hong Kong Stocks Surge 7% This Week
The Hang Seng Index (HSI) gained 7% this week, marking its best performance since 2011. Tech stocks outperformed even further, with the Hang Seng Tech Index climbing 12%, while China ADRs listed in the US rose by 8%. This surge in performance was primarily concentrated in Hong Kong, as the A-shares tracked by the CSI 300 saw a more modest increase of only 1%.
The surge in Chinese stocks could be attributed to a confluence of events. First, it is known that the China National Team has been purchasing ETFs to bolster the markets. China’s sovereign wealth fund, Central Huijin Investment Ltd., spent nearly 330 billion yuan ($45.5 billion) in the first quarter. Although this buying primarily supported the A-share market—focusing on ETFs like the Huatai-Pinebridge CSI 300 ETF, E Fund CSI300 Index ETF, Harvest CSI 300 ETF, and ChinaAMC CSI 300 ETF—it did not directly affect the Hong Kong market. However, other investors might see an opportunity to purchase equivalent H-shares, attempting to capitalize on this policy support. Additionally, these ETFs are listed in Hong Kong, which helps increase trading volume.
Second, the number of new Chinese mainland investors participating in the Wealth Management Connect (WMC) program with Hong Kong and Macao surged nearly 13-fold in March compared to the previous month. This increase is likely due to the program's expanded scope to include certain "non-complex" fund products that primarily invest in Greater China equity or are assessed as high-risk. This expansion appears to be popular among mainland investors, as evidenced by the surge, contributing once again to higher southbound trading volumes.
Third, China has issued new guidelines for its capital markets, comprising nine directives aimed at promoting the "high-quality" development of the Chinese stock market. The guidelines are as follows:
Overall standard - developing a safe, transparent, open, vibrant and resilient stock market. It hinges on protecting retail investors and improving the quality of businesses listed on the market.
Increases scrutiny on listing and issuances
Maintaining strict supervision on listed companies
Enhanced supervision on delisting companies
Enhanced scrutiny on the fund and securities market and going back to the basics for improvement.
Enhanced supervision on trading and increase stability of the market
Promotion of medium to long term capital inflow and increase long term investment strength
Continued reform and opening up for high quality development
Enhancing synergies for high quality development
The previous editions released in 2004 and 2014, which focused more on the development and expansion of the stock market, helping to build up its fundamentals. However, the latest guidelines emphasize supervision and increasing the market's appeal for long-term investments.
This shift is critical as Chinese stocks have long been known for their lack of transparency, prevalence of fraud, and being less shareholder-friendly. Enforcing these guidelines will improve the quality of the listings and instill confidence among investors. Without such confidence, investment dollars will not remain in the Chinese markets. This approach can be seen as a part of an effort to resolve the negative perception of Chinese stocks.
Overall, we are witnessing increasingly concrete policy support aimed at boosting the Chinese stock market following Premier Li Qiang's decision to prioritize the stock market as a critical component of China's strategy to enhance perception and confidence on the global stage. It is a positive sign that actions are being implemented and that these measures are contributing to a rising stock market.
#2 HKEX Revenue Declines 6% Yet Surpasses Expectations, Shares Soar 15% This Week
Keep reading with a 7-day free trial
Subscribe to Growth Dragons to keep reading this post and get 7 days of free access to the full post archives.