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  • South China Morning Post

    China's mutual funds, armed with cash from Ant Group's foiled IPO, plough into Tencent, HKEX and other Hong Kong-listed stocks

    Five Chinese mutual funds, armed to the teeth after their plans to invest in the world's largest stock sale were foiled, have deployed a new strategy to soothe investors: plough their US$6.2 billion of dry powder capital into Hong Kong's stocks.The strategy to invest in some of Asia's cheapest stocks appeared to have paid off, as Hong Kong's benchmark Hang Seng Index recovered beyond its pre-pandemic level last week to close in on 30,000 points, a level not seen since May 2019. Zhong Ou Innovation Future Fund has returned 23 per cent since October to investors, while the worst performer of the five returned 6.1 per cent, according to data on their websites.The rush of capital into Hong Kong explains why the city's stock market is riding a 20-month high, even as the local economy remains mired in its worst recession on record, with joblessness poised to jump to a multi-year high amid the raging coronavirus pandemic. Southbound capital, or funds that flow into Hong Kong via two cross-border investment channels called the Connect scheme with the Shanghai and Shenzhen bourses, has risen to successive daily records this week.Get the latest insights and analysis from our Global Impact newsletter on the big stories originating in China."The rally can be sustained as capital flows from the mainland show no signs of slowing down," said Kenny Tang Sing-hing, co-founder and chief executive of Royston Securities in Hong Kong. "Mainland investors may want to boost the capitalisation of Hong Kong's stock market. Chinese enterprises won't want to list in the US for safety reasons, so the market capitalisation here needs to be sufficiently big and deep enough in order to attract and absorb [the listing of] large Chinese companies."The five funds were established last October for unit holders to invest in Ant Group's US$35 billion dual listing on the Shanghai and Hong Kong exchanges. Each of the five funds raised 12 billion yuan (US$1.9 billion) within days, pledging up to 10 per cent of the capital to bid for Ant Group's shares.The IPO was suspended 48 hours before shares were due to begin trading, foiled by regulators amid a rush of new rules to prevent risk from China's fintech industry from spilling over into the broader banking system.Aggrieved investors pulled their funds, causing the combined size of the five funds to shrink by almost a third to 40 billion yuan. The five funds are under the management of China Universal Asset Management, E Fund Management, China Asset Management, Penghua Fund Management and Zhong Ou Asset Management. Ant Group's IPO halt leaves five mutual funds with US$9 billion in limbo, as potential first-day trading bonanza goes poofHong Kong-listed Chinese technology stocks were particularly sought after, as they provide the only way for mainland investors to partake in the growth of China's home-grown champions, according to the portfolios disclosed by four out of the five asset management firms.Tencent Holdings, China's largest games publisher, was the top holding for Zhong Ou, E Fund and China Universal, ranking number two among Penghua's investments as of January 14. Meituan the food delivery giant, Xiaomi the smartphone maker and Sunny Optical Technology Group, the producer of components for Apple's iPhones, were also among the funds' top 10 holdings.Tencent is now the world's sixth-largest company with a market cap of US$810 billion. Hong Kong Exchanges and Clearing, which is the world's largest bourse operator, capitalised at US$82 billion, is also among these funds' favourites."Technology and traditional sectors both have big weightings in Hong Kong's market," said Yin Yue, an analyst at Yuekai Securities. "Traditional sectors such as financials and automakers are expected to enjoy increases in both earnings and valuations amid the global recovery."Buying by the five funds has contributed to the HK$205.6 billion (US$26.5 billion) poured into Hong Kong's stock market so far this year by mainland investors, including HK$20.3 billion on Wednesday. They amoounted to almost 25 per cent of the net inflows for the whole of 2020.As much as 600 billion yuan of capital could flow into Hong Kong's stocks from mainland China in the coming years, according to a forecast by the country's largest investment bank, China International Capital Corporation (CICC), because of the local market's low valuation and the familiarity it offers to Chinese investors.Buying interest accelerated in January, as the funds were attracted by Hong Kong's low valuations. Among the Chinese stocks that are dual-listed on the mainland and in Hong Kong, China's yuan-denominated A shares were 34 per cent more expensive on average than their Hong Kong counterparts, according to a gauge tracking the price discrepancy between the two groups.Additional reporting by Martin ChoiThis article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2021 South China Morning Post Publishers Ltd. All rights reserved. Copyright (c) 2021. South China Morning Post Publishers Ltd. All rights reserved.

  • London’s Raucous Trading Ring Calls Time on 144-Year History
    Bloomberg

    London’s Raucous Trading Ring Calls Time on 144-Year History

    (Bloomberg) -- Almost every day for the past 144 years, traders engaged in shouting matches at the London Metal Exchange to set the global price of copper and other vital commodities. Now, just as the metals industry gears up for a global boom, one of its most iconic scenes may never return.The trading floor known as “the Ring” fell silent last year, as Covid-19 spread through the city of London. At one of the last open-outcry trading venues in the world, the raised voices, shared telephones and physical jostling among LME floor dealers made for a social-distancing nightmare.The exchange and its members insisted the closure was temporary -- until now. On Tuesday, the LME laid out a proposal to close the Ring for good and shift permanently to an electronic trading system for establishing the world’s benchmark prices for industrial metals.The plan, which the exchange says could increase transparency and boost volumes, sets it at odds with some of its longest-serving members, even if they seem to be facing the likely death of the Ring with reluctant acceptance.“It’s the end of a very long era and a very sad day,” Nick Fellowes, managing director at Amalgamated Metal Trading Ltd., said by phone. “We still have serious concerns about how the exchange will continue to operate efficiently during periods of illiquidity and uncertainty.”Traders have been dealing metals in London ever since a circle was first drawn in the sawdust in a coffeehouse off Cornhill in the early 19th Century. The LME was formally established in 1877, and the Ring survived as the pre-eminent venue for metal trading though world wars, scandals and ruinous defaults.If the LME follows through on the plan, it’s likely to be a blow to the smaller brokers that specialize in metals trading. The Ring is central to some of their businesses -- and the heart of a thriving community of metal trading that has made London its home since before the LME existed.“I’m one of an ever-shrinking number who are still very much behind the continuation of the Ring,” said Michael Overlander, chairman of Ring dealer Sucden Financial Ltd. “Markets have always been dependent on their participants. To actually meet face-to-face and eyeball-to-eyeball with your competitor still brings a spark to a marketplace that no other exchange I know of can boast.”LME Chief Executive Officer Matthew Chamberlain said in an interview that he shares his members’ love for the Ring -- famous for its red sofas and strict rules -- but that the exchange needs to change with the times.“It is tough in that sense, but we can’t let that get in the way of what we believe is best for the next 140 years,” he said.Much of the trading on the LME already takes place electronically and a shrinking number of brokers have taken their seats in the Ring over the years. Yet in preserving the trading floor, the LME has partly resisted the headlong push into digitization and automation seen in the wider financial markets.Read more: Trading Ring That Survived Two World Wars May Succumb to a VirusOther leading commodity markets, like the New York Mercantile Exchange and the International Petroleum Exchange, where benchmark oil contracts are traded, closed their open-outcry trading floors years ago.The relatively smooth functioning of the market since the pandemic struck has undermined the argument that the Ring was the only way that prices could be established for the LME’s complex system of contracts. And many participants in the metals markets -- from investors to manufacturers -- accept the LME’s argument in favor of pushing more trading onto its electronic platform.“This can come as no surprise to market participants, given the floor has now been closed for the past 10 months,” said Simon Van Den Born, president of Marex Spectron, one of the largest Ring dealers. “Given our scale and market share in many metals products, we are in a good position to take advantage of this development.”The Ring’s detractors have long argued it’s an anachronism that should be consigned to the history books. But the trading floor has deep roots in the physical markets, and its supporters argue that, while membership has diminished, it serves the global metals industry as well today as it did in Victorian times.The move comes just as the City of London is fighting to retain its dominance, with institutions picking through the implications of the U.K.’s exit from the European Union.“I think the strength of the City is its ability to be international, its ability to evolve, its ability to be at the center of international trade,” Chamberlain said. “We will only be able to maintain that position if we evolve our institutions.”The stakes are high for the LME too, as rival exchanges will likely see an opening to lure users of the Ring onto their own electronic platforms. The change comes just as metals and other commodity prices are surging.Read: Blankfein Called It, Now the Whole World Is Watching CommoditiesTrading volumes on the LME fell to the lowest level in a decade last year as the pandemic ravaged major industrial economies. Some brokers say the closure of the floor also contributed meaningfully to the drop.Alongside its proposal to close the Ring, the LME also suggested several other changes to encourage electronic trading and to lure more financial investors to the market. They include cutting some fees on trades that go through the LME’s electronic platform and raising them on trades that do not, as well as changing the system for calculating margin.The proposals are being put up for discussion until March 19, and the LME plans to make a final decision before the end of the second quarter.“We deeply respect the Ring, we love its traditions and it’s been fantastic for the LME,” Chamberlain said. “But we’ve always said that it’s appropriate to evolve the market as the overall industry moves on and as the needs of our participants move on.”For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.

  • Hong Kong Stocks at 20-Month High as Record China Cash Floods In
    Bloomberg

    Hong Kong Stocks at 20-Month High as Record China Cash Floods In

    (Bloomberg) -- Hong Kong stocks closed at the highest level since May 2019 as mainland investors continue a record spending spree in the city.The benchmark Hang Seng Index rose 2.7% Tuesday, soaring past last year’s peak as stock turnover in the city rose to a record $38.9 billion. A rally since late December has been powered by Chinese investors, who are targeting national firms such as China Mobile Ltd. that had earlier sold off on the imposition of U.S. restrictions.Mainland traders net purchased $3.4 billion of Hong Kong stocks, helping push the local dollar to its strongest level in more than two weeks. Hong Kong Exchanges and Clearing Ltd., the biggest beneficiary of such funds flowing into the city’s stocks, closed up 3.9% to hit a fresh high. Signs suggest that mainland buying will continue, with investors shifting out of A shares to buy those listed in Hong Kong. The benchmark Hang Seng Index is still cheaper than the Shanghai Composite gauge in terms of price-to-earnings multiples. The Hang Seng China Enterprises Index, which tracks Chinese companies listed in Hong Kong, is the world’s cheapest major index -- despite being one of this year’s best performers.As Hong Kong stocks gained on Tuesday, those listed on the mainland fell, with the CSI 300 Index dropping 1.5%. Consumer discretionary and materials stocks led declines. China’s Stock Rally Cools as Traders Shift Cash to Hong Kong“It’s time to shift out of A shares and into H shares,” Shanghai Banxia Investment Management’s Managing Director Li Bei wrote on the company’s official WeChat account on Monday. “The true value investor will exchange Kweichow Moutai Co. for China Mobile, and trade cooking oil shares for CNOOC Ltd.”Mainland Chinese investors have net bought more than HK$10 billion ($1.3 billion) of the city’s stocks for 12 straight sessions as of Tuesday, the longest streak since the start of the Shenzhen link in late 2016. Some of their favored targets have been firms that saw sharp selloffs recently due to their inclusion on a U.S. sanctions list, including China Telecom Corp. and railway equipment company CRRC Corp.The Hang Seng Index is trading at its highest level since May 2019, although still some distance from its all-time high notched in early 2018. The gauge is up nearly 9% this year and is among the best performers in the region.Hong Kong Exchanges & Clearing Ltd. is the big beneficiary of record inflows and a surge in trading activity. Shares of the city’s exchange operator are already up about 18% this year, after surging 68% in 2020. An indicator of momentum on Tuesday rose to the highest level since the height of China’s stock bubble in 2015.Tencent Holdings Ltd., one of the heaviest-weighted stocks in the Hang Seng Index, has surged 16% since the beginning of this year and closed at a fresh record high Monday. The majority of analysts surveyed by Bloomberg are bullish on the company and continue to raise target prices, with the highest implying a further gain of 29% from Monday’s closing level.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.