September 5, 2016 / 4:50 AM / 2 years ago

Hong Kong stocks power ahead on mainland money; China market loses direction

* SSEC 0.2 pct, CSI300 0.2 pct, HSI 1.7 pct

* HK’s IT, financial stocks jump ahead of Shenzhen Connect

* Chinese money inflows change HK market’s structure, preferences

SHANGHAI, Sept 5 (Reuters) - Hong Kong stocks started the week in a strong note, jumping nearly 2 percent in the morning session to a fresh one-year high as China’s yield-seeking investors continued to pour in money, while the mainland stock market struggled to find direction.

The benchmark Hang Seng index added 1.7 percent, to 23,667.37 points, the highest level since mid-August last year. The Hong Kong China Enterprises Index gained 1.5 percent.

The market’s robust upward momentum has been fuelled by a flood of money from the mainland, where investors are actively hunting for yields in a low-interest rate environment, and also seek to front-run a cross-border investment link between Shenzhen and Hong Kong that is expected to be launched in November.

Last week, Chinese investors spent 17.7 billion yuan ($2.65 billion) buying Hong Kong stocks under the Shanghai-Hong Kong Stock Connect, the biggest weekly inflows since last April.

“Chinese people are sitting on cash and looking for investment opportunities. Property prices are already high, wealth management products are no longer attractive and treasury yields are so low,” said Shen Weizheng, fund manager at Shanghai-based Ivy Capital.

“But Hong Kong stocks are still cheap compared with their peers on the mainland, where the market is losing direction in an increasingly tight regulatory environment.”

Shen, who has recently boosted holdings in Hong Kong stocks, said the Hong Kong market - which has gained roughly 30 percent from its February low - still has room to rise further, as more money will flow to the city once the Shenzhen-Hong Kong Stock Connect is launched.

“Chinese money already accounts for about 10 percent of Hong Kong’s stock trading volume, and will continue to change the structure and preference of this market,” he said.

All main sectors rose in Hong Kong, led by IT , which jumped over 3 percent as investors bet the Shenzhen-Connect will guide Chinese money into small-caps.

The financial sector was also strong, rising nearly 2 percent, as mainlanders snapped up blue-chips including HSBC Holdings Plc, Ping An Insurance Group Co of China and ICBC seeking dividends.

Chinese stocks continued their recent range-bound trading pattern.

Both the CSI300 index and the Shanghai Composite Index edged up 0.2 percent, to 3,321.41 points and 3,073.47 points, respectively.

Reporting by Samuel Shen and John Ruwitch; Editing by Eric Meijer

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