Hong Kong stocks are up in anticipation of the switch from Trump to Biden. Photo: AFP / Nicolas Asfouri

HONG KONG – Mainland cash is buoying Hong Kong stocks this week ahead of the presidential inauguration in the United States, which investors believe will begin a reset “honeymoon” period for China-US relations.

The benchmark Hang Seng Index rose 320 points, or 1.08%, to close at 29,962.27 on Wednesday, the highest level in 20 months.

The index has increased 10% so far this year from 27,231.13 on December 31, 2020. In mid-January last year, the index once hit 29,000 but fell to as low as 22,805.07 on March 20 due to the Covid-19 pandemic.

Hong Kong’s stock markets had been sluggish until it was clear that Joe Biden won the US presidential election, ousting the China-bashing Donald Trump. Since November 3, the Hang Seng Index has increased by 20.1%.

Hong Kong’s listed Chinese technology stocks have in particular benefited from the cash influx from mainland China. On Wednesday, Tencent Holdings rose 3.74% to a record high at HK$679.5 (US$87.66), while Meituan jumped 9.09% to HK$372. Smartphone maker Xiaomi Corp gained 1.75% to HK$31.95.

Ant Group founder Jack Ma in a file photo. Image: Facebook

E-commerce giant Alibaba Group ended up 8.52% at HK$265 on Wednesday after its founder Jack Ma appeared in a video, the first time he been seen in three months.

Speculation has run rife China’s top tycoon is at odds with Beijing since the planned dual-listing of Alibaba’s affiliated Ant Group in Hong Kong and Shanghai was stopped by Chinese regulators last October.

The video did not show Ma’s location but he spoke to 100 rural teachers and said he hoped to meet them after the pandemic.

Shares of the Hong Kong Exchanges and Clearing also hit a new high to close at HK$507 on Wednesday, up 1.2% from yesterday’s close.

On Tuesday, the bourse’s total market turnover reached HK$302.51 billion with a net inflow of HK$26.6 billion yuan from the mainland through the Stock Connect program. It was launched in 2014 to allow investors to trade securities in each other’s markets in Hong Kong, Shanghai and Shenzhen.

On Wednesday, a total of HK$20.29 billion flowed southbound from the mainland to Hong Kong markets through the Stock Connect program.

Hong Kong shares are rising in anticipation of a thaw in US-China relations. Image: AFP

“This could be the beginning of a bull market,” said Alex Wong, director of asset management at Ample Capital. “[The] Hang Seng Index could reach 32,000 to 33,000 points in the short term.”

Many mainland fund managers have recently turned to invest in so-called H-shares, which are cheaper than A-shares, Wong said. At present, A-shares still carried a 33.86% premium over H-shares, he said, citing the Hang Seng Stock Connect China AH Premium Index, which had dropped by 10% to 133.86 from a month ago.

Local investors believe the Biden administration will focus on containing the epidemic and associated relief measures in the coming months, creating an opportunity for Sino-US relations to deescalate, said Kwok Ka-yiu, the Hong Kong-based vice-president of Zhenro Asset Management.

Both the US and Hong Kong stock markets would be supported by such a trend, Kwok opined. “The first 100 days after the inauguration of Biden would be a honeymoon period for the global financial markets. Market outlook for this year has remained positive,” he said.

However, Kwok warned that investors should manage their risks prudently and allocate no more than 30% of their money in short-term trading. He said Hong Kong’s stock markets could see a correction if US stocks failed to maintain their current high levels.

Louie Shum, chief executive officer of Sincere Securities Ltd, said the recent surge in Hong Kong’s stock markets was the result of the net inflow of mainland capital as investors expected the Biden administration to move to improve Sino-US relations and cancel some of the sanctions Trump imposed on Chinese companies.

Joe Biden, then US vice-president, and Chinese President Xi Jinping toast during a state luncheon for China on September 25, 2015, at the US State Department in Washington. Photo: AFP / Paul J Richards

Shum said he expected mainland capital would continue to support Hong Kong’s stocks for some time, particularly listed Chinese firms that faced Trump-era sanctions. However, he added that if US-China political tensions continued to escalate under Biden, Hong Kong’s stock markets would be negatively affected.

SMIC, a Chinese chip maker, fell 0.34% to HK$29.5 on Wednesday but it has so far gained 33% this year. The company was among the 80 or more Chinese companies that were sanctioned by the US last month due to alleged connections with the Chinese military.

China Mobile, one of the three telecom companies sanctioned by the US, fell 1.8% to HK$49 on Wednesday. Yet the sanctioned company’s shares have increased 10.9% from the end of last year.