Hong Kong stocks rallied to a seven-year high and a gauge of mainland shares in the city jumped on speculation the market will catch up with its world-beating Chinese counterpart.
The Hang Seng Index climbed 2.7 percent to close at 26,944.39, while the Hang Seng China Enterprises Index gained 2.6 percent to the highest level since November 2010. Hong Kong Exchanges & Clearing Ltd. rose 8.9 percent after the bourse reported record trading volume on Wednesday. PetroChina Co., whose mainland shares trade at a premium to those in Hong Kong, declined 1 percent in Shanghai as commodity producers slid before Friday’s producer-price data.
Hong Kong shares rallied after valuation discounts in the city reached the most extreme levels since 2011 and mainland authorities made it easier for domestic funds to use the cross-border bourse link. After propelling the Shanghai Composite Index to an 88 percent gain in the past 12 months, mainland traders bought as many Hong Kong equities through the exchange link as regulators would allow for a second day, while investors sold Shanghai shares at a record pace.
“It was a crazy day yesterday and I am getting even busier today,” said Yen Chiu, a Hong Kong-based trader at Shenwan Hongyuan Group Co., China’s second-largest brokerage by market value. “It’s driven by mainland money on the expectation that the A-H premium will narrow.”
The Hang Seng China AH Premium index narrowed 3.3 percent. Trading volumes in the Hang Seng were 196 percent higher than the 30-day average. The Hong Kong benchmark has risen 18 percent over the past year, while the H-shares measure surged 32 percent.
Gome Electric Appliances Holding Ltd. rallied 7.7 percent in Hong Kong, while Lenovo Group Ltd. advanced 9.1 percent. China Mengniu Dairy Co. advanced 6.7 percent after it formed a strategic alliance with Walt Disney Co. for a theme park in Shanghai.
China Asset Management has almost exhausted its quota for the Qualified Domestic Institutional Investor program amid the rally in Hong Kong stocks, Zhang Hongtao, an executive general manager of quantitative investment, said in a phone interview.
Regulators are studying a plan to revise quotas for the Shanghai-Hong Kong stock connect, Great Wisdom reported on its Weibo account, citing an unidentified person with a major brokerage.
Shanghai Simpleway Asset Management, which manages 2 billion yuan ($322 million) in assets, is buying Hong Kong stocks through the exchange link and plans to at least double the ratio of the city’s shares in its portfolio, Gui Jiang, its general manager, said in a phone interview Thursday.
Hong Kong’s stocks are a better value because they are cheaper, he said. The H-shares gauge trades at 9.4 times estimated profit for the next 12 months, compared with 12.7 for the Hang Seng index and 15.1 for the Shanghai Composite.
The Shanghai gauge fell 0.9 percent to 3,957.53 today after briefly surpassing 4,000 on Wednesday. Its relative-strength index, measuring how rapidly prices have advanced or dropped during a specified time period, climbed to 83.9, the highest since December 2014.
The CSI 300 Index lost 0.8 percent as consumer and commodity companies slid before tomorrow’s inflation data. Gree Electric Appliances Inc. of Zhuhai slid 2.5 percent, while TCL Corp. tumbled 4.4 percent.
Chinese consumer prices likely rose 1.3 percent, slowing from a 1.4 percent gain in February, according to the median estimate of a Bloomberg survey. Producer prices probably declined 4.8 percent in March, unchanged from the previous month. The price spiral is being driven by commodities and industry, with the producer price index plunging 4.8 percent in February, the biggest drop since the global recession of 2009.
The Shanghai index has doubled since January 2014 as traders borrowed a record amount of money to buy shares, new investors opened stock accounts at an unprecedented pace and government officials endorsed the rally.
Chinese shares may have momentum to rise in the medium-to-long-term after fluctuations, the official Xinhua News Agency said in an article on its website. The Shanghai gauge’s 100-day volatility climbed to the highest level since January 2010.
“I firmly believe that over the course of the next 12-24 months, Chinese stocks will be significantly higher than where they are now, certainly enough to compensate that kind of volatility,” Mark Matthews, Singapore-based head of Asia research at Bank Julius Baer & Co., told Bloomberg TV.