Amid market decline, foreign investors chase China stocks and mainland traders sell Hong Kong shares
Overseas investors bought China stocks for 13 consecutive days through Wednesday, while mainland traders sold Hong Kong shares for five days in a row
While sell-offs have been rattling markets in China and Hong Kong, foreign and mainland investors have differed in their approach to investments made through the stock connect programmes that link the bourses in Shanghai and Shenzhen with Hong Kong’s.
Unfazed by declines, overseas investors had net purchases of mainland shares for 13 consecutive days through Wednesday, according to data by Bloomberg. Meanwhile, mainland traders seem to have fled their previously favourite asset class and sold Hong Kong stocks for five days in a row.
This is the longest streak of mainland investors selling Hong Kong stocks since the stock connect started in 2016.
And while overseas investors might be forced to buy Chinese stocks to mirror the change in their portfolios ahead of the inclusion of mainland equities to MSCI benchmarks, mainland traders’ flight from Hong Kong shares comes as a surprise, as there had been a total of five days that registered net sales this year before this latest round of selling.
The quick turnaround can possibly be explained by the fact that most mainland investors are trend followers, who cut or even close their positions after sensing that the momentum in Hong Kong stocks has weakened, according to Wei Wei, a trader at Huaxi Securities in Shanghai.
Mainland investors chase the trend and ride the momentum. When things go wrong, they sell to protect their short-term profits
