30,000 points under the belt - where next?
HK, Shanghai stock markets diverge
The surging Hang Seng Index closed above 30,000 for the first time, underscoring the diverging fortunes of the Hong Kong market and its once-stellar mainland counterparts, which slumped for a second week.
Betting that the US Federal Reserve will cut interest rates next week and that local banks will follow suit, Hong Kong investors pushed the blue-chip index to a record 30,405.22 yesterday, a 3.19 per cent gain for the week.
By contrast, the Shanghai Composite Index slid 3.9 per cent, to 5,589.63, during the week as punters fretted that the nation's central bank was about to increase borrowing costs for the sixth time this year to control runaway economic growth.
Mainlanders, who have driven the Shanghai index up 108 per cent this year, are losing confidence in home markets and increasingly turning to Hong Kong. The Hang Seng has soared 49 per cent since a scheme - dubbed the 'stocks through-train' - allowing mainlanders to invest directly in Hong Kong-listed shares was announced in August.
'More mainland money is coming to Hong Kong and driving the market,' said Nicholas Yeo, an investment manager with Aberdeen International Fund Managers.
The two markets, which have climbed in record-breaking lockstep for most of the past three months, are diverging amid fears that the fastest- growing major economy could be facing a boom-to-bust scenario. The Shanghai Composite has slipped 8 per cent from its record high on October 16 amid concerns that inflation will devalue investment returns.
With the 'through train' yet to receive final approval, mainland money is flooding into Hong Kong through professionally managed funds under the qualified domestic institutional investor (QDII) scheme.
'The regulators would rather approve more QDII funds to direct money outside,' said Zhou Liang, a researcher at Lipper. 'The government's attitude is weighing on mainland stocks.'
But the torrent of cash is causing problems of its own in Hong Kong. The Monetary Authority yesterday intervened in the market for the second time this week, buying US dollars to prevent a further surge in the local currency. The Hong Kong dollar climbed to a three-year high this week, partly as investors piled into hot initial public offerings such as Alibaba.com's HK$11.6 billion share sale. The demand for cash to invest in IPOs has pushed up the dollar's value.
Hong Kong's central bank sold HK$775 million of the local currency for US dollars, the same amount as on Tuesday. The Alibaba offering drew HK$450 billion in orders from retail investors, market sources said.
'The Hang Seng Index could touch levels between 30,800 points and 31,000 points next week,' said Patrick Yiu Ho-yin, associate director at CASH Asset Management.
By contrast, PetroChina's initial public offering on the mainland has soaked up funds from existing stocks, contributing to market losses.
A rebound in mainland markets 'is not certain because worries of a bubble now dominate', Shanghai Securities analyst Wu Kan said.
