SHANGHAI, Jan 13 (Reuters) - For a second straight day, offshore investors on Tuesday sold more Shanghai shares than they bought through the Hong Kong “connector”, highlighting waning foreign confidence in the sustainability of China’s stock market rally.
Between the connector’s launch on Nov. 17 and this week, there was only one day when foreigners were net sellers of Shanghai shares, on Dec. 30, when many investors were closing accounts for the year.
This week’s net selling comes as the rally in Shanghai, which began in the wake of the connector’s launch, shows signs of wobbling, adding to concerns among already-wary foreign fund managers.
It also could be bad news for the Hong Kong Stock Exchange, which has been trying to reassure foreign investors that their legal rights will be protected in China.
“Foreign investors don’t agree with the current value of A-shares so they are cashing out instead of going in,” said Alex Wang, a director at Ample Finance Group in Hong Kong.
“It’s very dangerous to get into A-shares at their current level because momentum is too strong, the value is unjustified and there hasn’t been much fresh news,” Wang said.
Chinese regulators have capped northbound net investment flows from Hong Kong accounts into Shanghai at 13 billion yuan ($2.10 billion) each day. But for the most part, that quota has gone unused as foreign fund managers remain nervous about regulatory uncertainties and technical challenges.
And the trade turned negative this week, with the Tuesday quota closing at -115.88 million yuan (-$18.70 million).
The net negative number, calculated by subtracting the daily quota from both buy orders and sell trades, indicates more foreigners sold shares in Shanghai stocks than bought them.
Beijing’s Nov. 21 surprise interest rate cuts, aimed at supporting a wavering Chinese economy, caused Shanghai’s share index to surge to near 5-year highs. This turned the Chinese market into one of the world’s best performers in 2014.
However, Hong Kong traders never quite climbed on board the mainland rally, even though China-related companies dominate the HKEX. That caused an enduring pricing disconnect between the shares of dual-listed companies, with Shanghai shares on Tuesday trading at an average 26 percent premium to Hong Kong-listed shares in the same company.
$1 = 6.1970 Chinese yuan renminbi Additional reporting by the Shanghai Newsroom; Editing by Pete Sweeney and Richard Borsuk