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The upcoming Shenzhen-Hong Kong stocks cross-trading link is set to inject a fresh round of mainland capital into the Hong Kong stock market. Asia News Photo

Stocks rally expected to go on as HK is merely trying to catch up: Ceajar Chan

Secretary for Financial Services and the Treasury Ceajer Chan Ka-keung has dismissed fears of a "bubble" in the Hong Kong stock market despite the continued bull run, saying he believes the rally will continue.

The local bourse is merely catching up with that of others in the region, many of which have hit historic highs, he said on Tuesday, adding that a daily turnover of HK$200 billion will become a "new normal" for Hong Kong.

The Hang Seng Index (HSI) added another 0.03 percent on Tuesday, closing at 28,442.75 on turnover of HK$172.5 billion, while the Shanghai Composite Index was down 1.13 percent at 4,476.22 after having surged to new seven-year highs at above the 4,400-mark.

Japan's Nikkei Index also advanced, gaining 0.38 percent to 20,058.95 after hitting a 15-year peak at above 20,000 last Thursday.

Although market analysts have warned of the risk of a bubble in the local market in the wake of the long rally both in Hong Kong and on the mainland, Chan said a stock market bubble is a sensitive term with different definitions.

Grace Tam Wai-man, global market strategist at J.P. Morgan Asset Management, concurred with Chan, saying she was not concerned either about "bubble trouble" for the local stock market as the valuation for H shares is still relatively low.

So far, Hong Kong stocks have been traded at 20 to 30 percent cheaper than their mainland peers, she noted.

Kingston Lin King-ham, general manager of securities and asset management business at Hong Kong-based AMTD Asset Management Ltd, said the HSI has remained low compared with a record high of 31,638.22 in 2007, leaving much room for it to rise further.

"Capital inflow from the mainland is expected to boost the Hong Kong stock market, whereas foreign investors jumping on the bandwagon may aim to short sell H shares, rendering the stocks undervalued and vulnerable to declines, resulting in market fluctuations," Lin said. "And that's exactly what worries me."

Having seen the huge price volatility of some Hong Kong stocks due to the large trading volume, Chan, however, warned investors to be aware of the corresponding risks.

As the wide price gap between A and H shares pushes more mainland investors into the Hong Kong market to snap up juicy arbitrage opportunities, some people are worried it will make the market more "irrational" like the A-share market.

But Chan does not agree with the argument. He said the stock-price gap is not due to the A- and H-share markets not having opened up to each other completely. It arises from the different constitution of investors in both stock markets.

"In terms of their viewpoints on economic prospects and the value of companies, as well as their investment sentiment in the short- and long-run, mainland investors can be quite different from their Hong Kong peers," Chan said in a note published on April 26. "That leads to the A-H premium."

Chan believed that the Hong Kong stock market could still retain its nature with foreign investors coming in, and Hong Kong's market structure and regulatory system being different from the mainland's.

What really matters, he said, is that the SAR should try to maintain a high level of risk management.

He added the first draft for the upcoming Shenzhen-Hong Kong Stock Connect has already been drawn up and is waiting to be officially published by regulators on both sides.

The launch of the second stocks cross-trading link is expected in the second half of this year, Chan said.

sophia@chinadailyhk.com

(HK Edition 04/29/2015 page8)