- Funds are on the sidelines after recent rally, Hengsheng says
- Southbound flows this week more than twice 2016 daily average
Chinese shares in Hong Kong fell, trimming a weekly gain by the benchmark index, as banks and brokerages declined.
The Hang Seng China Enterprises Index dropped 1 percent at the close, paring its weekly advance to 2.1 percent. Industrial & Commercial Bank of China Ltd. and China Galaxy Securities Co. retreated at least 1.8 percent. China Unicom Hong Kong Ltd. jumped the most in a month after Goldman Sachs Group Inc. raised its rating to buy. China Petroleum & Chemical Corp. capped its biggest weekly increase in two months to lead energy producers as crude traded above $45 a barrel. The Shanghai Composite fell 0.3 percent.
Stocks gained this week after the Federal Reserve held off raising borrowing costs on Wednesday and reduced the pace of planned hikes for 2017 and beyond, while the Bank of Japan strengthened its commitment to reviving inflation. The H-share index has rallied 12 percent this quarter to outperform the Shanghai Composite by the most since 2012 as mainland investors flocked to Hong Kong stocks amid cheaper valuations, a stable currency and the imminent start of a second exchange link with China.
“Funds, especially those from the mainland, are opting to watch on the sidelines now,” said Dai Ming, a money manager at Hengsheng Asset Management Co. in Shanghai. “After the good run-up, Hong Kong shares are at a high level and closing its price gap with mainland stocks. There’s some caution in the market now.”
The H share gauge was at 9,796.01, while the Hang Seng Index fell 0.3 percent, paring its weekly advance to 1.5 percent. The Shanghai gauge fell to 3,033.90.
The People’s Bank of China hasn’t lowered borrowing costs in nearly a year and has been increasing its communication in recent weeks to signal the use of liquidity tools, rather than moves such as rate cuts, amid efforts to keep the yuan stable.
The Hang Seng China AH premium Index climbed 0.7 percent, taking the premium of yuan-denominated shares over their dual-listed Hong Kong counterparts to 20 percent.
“Many H shares have shortened their spread with A shares already, so there’s limited room for a further rally,” said Yen Chiu, a Hong Kong-based trader at China Securities International Finance Holding Co. in Hong Kong.
Hong Kong stocks’ recent rally has come amid increasing southbound inflows from the Shanghai exchange link. Daily purchases by mainland investors averaged nearly 2.8 billion yuan ($420 million) this week, more than twice the daily average since the beginning of this year.
The increase in Chinese flows across the border contrast with subdued trading on the mainland. Five-day average turnover on the Shanghai and Shenzhen exchanges has fallen to the lowest level since November 2014. Trading values have dropped by more than 80 percent from a peak in May last year.
ICBC dropped 3 percent and China Galaxy Securities lost 1.8 percent. Ping An Insurance Group Co. retreated 1.5 percent.
China Shenhua, the nation’s biggest coal producer, jumped 7.9 percent this week, pacing gains for energy companies. Sinopec and China Oilfield Services Ltd. climbed at least 4 percent over the five-day period. China Unicom added 4.3 percent on Friday after Goldman Sachs raised its recommendation on the stock from neutral, citing the company’s expanding base of 4G subscribers.
— With assistance by Shidong Zhang