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China rate cut's impact on stock connect

Reporter: Cathy Yang 丨 CCTV.com

05-13-2015 00:15 BJT

China's central bank has cut interest rates three times since November, just when the Hong Kong-Shanghai Stock Connect Scheme was launched.

When the landmark Stock Connect scheme linking Hong Kong and Shanghai was launched last November 17th – another milestone took place a few days later.

In Beijing, the People’s Bank of China began a series of rate cuts for the first time in more than two years.

The monetary easing has helped lift the Mainland stock market nearly 30 percent so far this year. The market has been the best performer in Asia and is outpacing the major US and European indexes.

Property and infrastructure plays were favorites as were manufacturing counters in Hong Kong. They were the biggest winners on the Hong Kong stock market last Monday as the third rate cut came. Asset manager Alex Wong says Chinese investors are moving the markets.

"Mainland investors are actually more bullish than Hong Kong people. Right now in Hong Kong, even though we had the rate cut in China, people are probably concerned about the Greek situation in Europe," said Alex Wong, Director of Asset Management, AMD Finance Group.
The rally in Hong Kong stocks since November has so far paled in comparison with that from the Mainland. China’s main stock index has soared more than 90 percent over the past year – while the Hong Kong China Enterprises index rose just under 30 percent – or one-third of its Mainland counterparts’ gains.

Hong Kong did set a milestone on April 8th, though, when Mainland investors used up the entire daily quota for buying Hong Kong shares under the scheme. The unprecedented buying spree boosted turnover to a record, lifting the Hang Seng Index to its highest level in nearly seven years.

Mainland investors have become keener on Hong Kong shares since Mainland regulators allowed mutual funds to start buying Hong Kong shares under the scheme.

"We get the impression that some of the retail investors are starting to think of buying the Hong Kong shares, since the shares are trading at a deep discount," said Lewis Wan, Chief Investment Officer, the Pride Group.

How fast Hong Kong stocks catch up with their Mainland peers depends largely on regulatory reform and monetary decisions from Beijing in the coming months.

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