SHANGHAI, April 11 (Reuters) - Recent wild rides by China
companies listed in Hong Kong show that the "Connect" schemes
which move funds from mainland markets to Hong Kong's can also
carry in a different investor culture.
Last week, the staid Hong Kong exchange got a dose of the
kind of speculative "pump and dump" sometimes associated with
China's retail-driven markets.
Hong Kong-listed shares of BBMG, a Beijing-based
developer and cement maker, jumped as much as 63 percent after
China said it will build a major economic zone near the Chinese
Amid the surge, a Morgan Stanley downgrade knocked more
than 10 percent off the stock's price.
Mainland Chinese money was largely responsible for the
share's rocketing, exchange data showed, as investors took
advantage of the "Connect" schemes letting them buy Hong Kong
The BBMG case underscores mainland investors' growing
influence in the Hong Kong market - which could increase
pressure on regulators to protect small investors from getting
hurt by speculative inflows.
The Hong Kong Stock Exchange maintains it can deal
with any issues.
LOTS OF TOOLS
"The market has some new participants and market dynamics
may reflect that from time to time," a HKEx spokesman
said. "Hong Kong has a sound regulatory regime. Regulators of
the Hong Kong and Mainland markets have a lot of tools and will
take action if they suspect rule violations."
Ashley Alder, chief executive of the Securities and Futures
Commission – Hong Kong's markets regulator – said in November
it had stepped up coordination with the China Securities
"Cross-border supervision and investigation will become even
more essential to contain risks to our respective markets as
they experience even larger cross-border flows," Alder told a
Thomson Reuters conference.
The official Shanghai Securities News last month said
Shanghai, Shenzhen and Hong Kong exchanges are coordinating
supervision over illegal trading activities conducted via the
Linus Yip, Hong Kong-based chief strategist at First
Shanghai Securities, said he is incorporating the growing
"southbound" flows from the mainland into his analysis.
"The market landscape is changing. Mainland investment
style and preference is being increasingly felt," Yip said.
Hong Hao, chief strategist at BOCOM International, said
there are concerns about market manipulation schemes. He
described BBMG's surge as speculative.
Hong Kong shares typically trade at discounts to their
mainland counterparts. Unlike Shanghai and Shenzhen-listed
stocks, they are not subject to daily limits and can be more
On April 5, when BBMG hit a two-year-high in Hong Kong, it
was the most actively-traded stock by Chinese investors under
the Connect launched in 2014. The next day, BBMG was the second
most actively traded stock, trailing only giant HSBC Holdings.
In 2015, mainland investors accounted for 22 percent of
stock trading among overseas investors in Hong Kong, compared
with 5 percent a decade ago.
Chinese investors have spent HK$104 billion ($13.4
billion)on Hong Kong stocks via the Connect this year, about 65
percent more than the 55.7 billion yuan ($8.07 billion) that
moved in the other direction, according to exchange data.
BBMG wasn't the first Connect-driven surge of Hong Kong
share. Chinese selfie app maker Meitu Inc and a maker
of Chinese spicy stewed duck neck, Zhou Hei Ya International
, saw dramatic swings last month.
Shanghai-based fund manager Shen Weizheng said he bought
into BBMG not based on fundamentals, but confidence he could
resell the shares at a higher price to other mainland investors.
(1 Chinese yuan = 1.1263 Hong Kong dollars)
($1 = 7.7698 Hong Kong dollars)
($1 = 6.9020 Chinese yuan)
(Reporting by Samuel Shen and John Ruwitch; Additional
reporting by Michelle Price in Hong Kong; Editing by Tony Munroe
and Richard Borsuk)