Hong Kong Stocks Rally As Sovereign Bank Buy-Up Overshadows Climb In Negative Mortgages

Shares of bank stocks lifted Hong Kong markets Thursday as China’s sovereign fund went on a bank buying spree.

State-owned fund Central Huijin Investment Ltd. snapped up $65.7 million in Bank of China Ltd. BACHY, China Construction Bank Corp CICHY, Agricultural Bank of China Ltd. ACGBF and Industrial & Commercial Bank of China Ltd. IDCBY. The fund said that it would continue with the purchases over the next 6 months, although declined to specify to what extent.

Huijin raised its stake in each bank by ten basis points. The investment fund now owns 64.03% of Bank of China, 40.04% of Agricultural Bank of China, 57.12% of China Construction Bank and 34.72% of ICBC, according to Caixin. All the four banks were up between 4-5% in Hong Kong trading.

With Chinese dividend yields currently near historic highs, share purchases of stocks by DChinese state funds are expected to be highly profitable over the medium term, according to the region’s investment managers.  

More measures are being taken by Beijing to lift flagging confidence in the Chinese mainland. The Chinese government is now expected to raise the deficit as it puts in 1 trillion RMB ($137 billion) to shore up the local economy, although some analysts say this won’t be enough.

Property developer stocks were sharply down on more gloomy data from the home market in Hong Kong. (See this recent article on the Hong Kong housing bubble at Benzinga for more.)

Hong Kong negative equity mortgages may be about to hit a 19-year high after succumbing to a 10% drop in home prices this year, according to new data. With expectations for another 10% fall in home prices on the island, that means that over 5% of all homes will enter negative equity territory. Negative equity mortgages are where the total sum of the mortgage held exceeds the value of the property.

Country Garden Holdings Company Limited CTRYF was down 1.3% while Sunac China Holdings Limited SNCNQ fell 0.95%. China Evergrande Group EVGRF plunged 9% by the end of the day’s trading.

EV names fared better on sentiment that bailouts would add to increased purchases for automobiles and recovering deliveries. NIO Inc. NIO was up 1.1%, XPeng Inc. XPEV gained 0.4%, Li Auto Inc. LI rose 1.6% and BYD Company Limited BYDDY jumped 3.1%

A report by Nikkei said that Chinese companies are gradually coming back to list on US exchanges, although at a much slower pace that in 2021. Year-to-date, 17 Chinese companies have debuted on US exchanges, raising $405 million vs. 14 Chinese firms for the whole of 2022 which raised $468 million. That’s still far off the $12.6 billion raised by 34 Chinese companies in 2021.

The report said that the Chinese companies that went public in the US between 2018 and 2021 have so far showed investors a -65% return from offer vs. just -16% for returns on non-Chinese IPOs in the US. Of the Chinese IPOs that have gone public this year, only one, Hesai Group HSI has raised more than $50 million and that is currently trading at half the value it was in its February debut.

The report added that tighter accounting regulations for companies wanting to list stateside, by both Chinese and American authorities, as well as political tensions between the two countries were hampering a strong return to US markets for new China listings.  

The report cited Alibaba Group Holding Ltd BABA as an example of the sort of stock that has fallen out of favor among investors in recent years due to these extenuating circumstances.

Alibaba rose in value in Hong Kong along with other big consumer names JD.com, Inc. JD and Tencent Holdings Ltd TCEHY on the market’s broader bullish bailout sentiment.

The Hang Seng Index rose 1.9% to 18,283.21 while the CSI 300 finished the day 1% higher at 3,702.38.