On Jan. 19, the daily trading volume of Hong Kong stocks exceeded 300 billion Hong Kong dollars ($38.7 billion). On Jan. 21, the Hang Seng Index, which tracks the Hong Kong stock market, rose by more than 10 percent, ranking first among the most important global indexes, according to NetEase Finance.
Despite the spread of the pandemic in Hong Kong, a weak economy, and the Chinese Communist Party’s (CCP) increasingly stringent control, the Hong Kong stock market experienced an unusual rise from Jan. 6 to Jan. 21.
Hong Kong Guotai Junan Securities (GJS) issued a report predicting that Hong Kong stocks are expected to have an “index bull market” in 2021. However, according to expert analysis, this bull market is driven by policies and built on a weak foundation. It functions more like a casino for the CCP to collect money.
According to a report by The Paper on Feb. 3, since the beginning of 2021, capital has continued to flow into Hong Kong stocks, stimulating the long-silent Hong Kong stock market. Wind Data Service shows that in January, the total annual net inflow of funds into Hong Kong rose to 310.623 billion Hong Kong dollars ($40.67 billion).
The net purchase amount in just 13 trading days this year exceeded 30 percent of last year’s, close to the 249.3 billion Hong Kong dollars ($32.16 billion) in 2019, according to the NetEase report.
Later, due to the listing of Kaishou, a new stock in Hong Kong that attracted a lot of capital, Hong Kong stocks fell. In the first month of 2021, the Hong Kong Hang Seng Index rose by 1052 points or 3.9 percent; the Hang Seng Technology Index rose by 932 points or 11.1 percent in January.
Chinese Money Floods HKSE
GJS also said that with the accelerated inflow of funds, Hong Kong stocks will continue to lead the world, and overseas funds will return to Hong Kong stocks.
On Jan. 20, a Chinese-language Securities Times article on the funds flowing into the Hong Kong Stock Exchange (HKSE) mentioned that leading internet companies, unicorn startups, and other new economic leaders in biotechnology are now listed in Hong Kong. These high-quality core assets that aren’t available as A-shares have attracted investors from mainland China.
The most sought after are technology giants such as Tencent Holdings, Meituan, and Alibaba. Leading companies such as the Industrial and Commercial Bank of China and Construction Bank will greatly benefit from the resonant inflow of funds from China and overseas.
China Concepts Stock Returns to HK for 2nd Listing
Mike Sun, a financial expert with more than 30 years of investment experience in China, told The Epoch Times that he believes the pouring of funds into the HKSE means Beijing is mobilizing to prepare for the expansion of Hong Kong’s capital. He predicted that the CCP will continue to suppress the housing market in 2021 while supporting the stock market and expanding capital.
Sun explained that while the development of the capital market was emphasized in the CCP’s 14th Five-Year Plan in October 2020, the new securities law for IPOs introduced in March 2020 changed from an approval system to a registration system. He believes the purpose is to find a new reservoir for overprinted banknotes and to collect money from the stock market. Not only will mainlanders’ savings be driven toward the stock market, foreign capital is also targeted. The goal is to attract capital from Wall Street to the Hong Kong stock market.
Sun also mentioned that the CCP will take the initiative to allow China concepts stock in the U.S. stock market to be listed in Hong Kong.
“Today, the CCP wants to expand the stock market, but it is facing a shortage of assets. The few high-quality assets make its stock market less appealing. Most of the quality assets have been listed in the United States. If these companies of China concepts stock are allowed to return to China, they’ll be able to help to collect money in the Chinese stock market and let the funds go into the Chinese H shares and A shares, then the situation will be very different. For example, the stage is set up, but there are not enough good actors. So good overseas actors, even if the box office hits are not high, are retrieved,” he said. “Of course, packaging is also very important.
“Now, China capital is sweeping the Hong Kong stock market. Everyone is rushing for chips in order for the next larger Chinese concepts stock to be listed in Hong Kong for the second time.”
State-Owned Enterprises Packaged for Listing
China concepts stock refers to stocks that are registered and listed overseas, but the largest controlling interest—usually more than 30 percent—and the actual controller is directly or indirectly subordinate to a private enterprise or individual in China.
Sun believed that while overseas Chinese concept stocks are returning to Hong Kong, Beijing is also vigorously building state-owned enterprises (SOEs), hoping to make SOEs bigger and stronger. At the same time, it’s engaged in “mixed reform management,” a system of reforming SOEs and private enterprises into high-quality stock market assets to attract international capital.
Sun took China’s largest iron and steel company, China Baowu Steel Group, as an example. The company plans to list all of its more than 30 subsidiaries in the next three years.
The Chinese public data shows that Baowu Group is the leader of China’s steel industry. The registered capital is 52.79 billion yuan ($8.175 billion), and assets exceed 860 billion yuan ($133.178 billion). In 2019, its crude steel output was 95.46 million tons and total operating income was 552.2 billion yuan ($85.513 billion). The total profit was 34.53 billion yuan ($5.347 billion), and the scale of operation and profitability ranks first in the world.
Under Baowu, five subsidiaries that make money, such as Baosteel, are listed. The other subsidiaries only generate 20 percent of the net operating cash flow for the group but bear 71 percent of interest-bearing debts.
Sun reminded investors that in the next three years, Baowu will package the nearly 30 low-quality subsidiaries and conduct IPOs on the stock market, which is very risky to the investors.
“There are too many state-owned enterprises like this. As former Chinese Premier Zhu Rongji said back then, the Chinese stock market is the cash machine for state-owned enterprises. This is the essence of China’s stock market. Officials will promote publicity during IPOs. In the first few years, it will continue to rise in the stock market, but when the general public starts to enter the market and even the little old ladies who dance square dances also speculate in stocks, it becomes dangerous. Because there is no real economy to support the high stock prices,” Sun said.
Wall Street Downplays Dollar, Touts CCP
In an Aug. 24, 2020, article from The Conversation, professor of finance Arturo Bris analyzed the currency risk.
“For international investors in general, currency risk—above all the weakening of the U.S. dollar—has become the most important financial risk of the year. In spite of the pandemic, it has even overshadowed their considerations about specific firms and sectors,” Bris wrote.
“For a European investor, for example, U.S. markets have yielded about 5 percent in U.S. dollar terms in the first eight months of 2020. Translated back into euros, however, that return is 0.5 percent because of the depreciation of the U.S. dollar over the past two months,” according to the article.
In recent years, Wall Street has downplayed the dollar and touted the CCP.
For example, on Nov. 25, 2020, Goldman Sachs predicted China’s outlook in 2021 and claimed that RMB is very optimistic in 2021.
As the CCP prepares for capital expansion, Goldman Sachs still recommends a high portfolio allocation of China’s stock market. It fits well with the CCP narrative.
In July 2020, former Morgan Stanley Asia Chairman Stephen Roach said that “the dollar is going to undergo a sharp correction to the downside” and “the Chinese renminbi can also continue to move up on a broad trade-weighted basis” and that RMB could be an alternative to the dollar. On Jan. 25, Roach also stated that “the dollar’s crash is only just beginning.”
Sun said that not long ago, Chinese regime leader Xi Jinping’s open letter to the former CEO of Starbucks Howard Schultz wasn’t only targeting Starbucks, but also targeting the world’s big capital, especially Wall Street capital. Xi Jinping wanted to attract Western capital to China.
“Xi Jinping’s beckoning is full of tactics from the CCP. The CCP hides no bait and believes that someone will always volunteer to grab it,” Sun said.
“Beijing wants to attract Wall Street dollars to the Chinese stock market. What the international predators think about is how to make money in the Chinese stock market and how to convert it into U.S. dollars. I learned from sources close to Beijing’s high-level officials that this is a bargain between the two sides.”
Sun, who has more than 30 years of investment experience in China, has many connections among the senior cadres.
“The CCP stock market is a casino, and it is a doomsday casino,” he said.