* Chinese insurers, mutual funds power Hong Kong stock rally
* Clampdown on WMPs make direct stock investing more popular
* Hong Kong shares less pricey than China, Asia ex-Japan
By Samuel Shen and Saikat Chatterjee
SHANGHAI/HONG KONG, Feb 20 New rules giving
Chinese insurers greater access to Hong Kong stocks and a
crackdown on risky products at home are pushing mainland funds
into the former British colony, driving the benchmark Hang Seng
index to five-month highs.
Long-term capital from mutual funds is also seeping into
Hong Kong equities, considered more attractively priced than
those in China and some Asian markets on some valuation metrics.
"Chinese investors including mutual funds and major insurers
have been steadily increasing their allocation to Hong Kong
stocks," said Ye Hongbin, general manager at China Rater
Investment Management Co, a Guangzhou-based hedge fund.
Brokerage Industrial Securities expects Chinese insurers to
earmark 250 billion yuan ($36.5 billion) in fresh capital this
year - about 3 percent of their total assets - while onshore
mutual funds are set to pump in 50 billion yuan via the connect
Global markets have been rising on reflation hopes, but Hong
Kong's 10-percent rise since the start of the year is benefiting
from signs of stabilisation in China's economy and changes to
Mainland insurers were permitted to invest in Hong Kong via
the cross-border stock scheme last year.
Southbound flows via the Shanghai-Hong Kong stock connect
recorded a ninth week of net purchases while utilisation rates
have climbed to more than 20 percent of the daily quota compared
with an average of less than 11 percent in January.
Robert Di, a founding partner of hedge fund manager RPower
Capital, said the outlook on Hong Kong equities was improving.
"If the Hang Seng can break through the 24,000-point level
effectively, then, the bull market is established."
On Friday, the index closed at 24,033.74, not far from where
a Reuters poll had predicted the index would be at the end of
Also encouraging southbound flows is the opportunity to
hedge against yuan depreciation, as the local Hong Kong dollar
is pegged to the greenback. That, coupled with expectations for
improved earnings and cheaper valuations, could keep China funds
flowing to Hong Kong.
"The main attraction, of course, is the big valuation gap –
Hong Kong stocks are still much cheaper than mainland peers,"
said a fund manager, who declined to be named, at hedge fund
China Dragon Investment.
The Hang Seng index trades at a historical earnings
multiple of 13 compared with blue-chip stocks on the mainland
at 18 times earnings. The U.S. S&P 500 trades
at a ratio of 21.
On 12-month forward price-to-book terms, Hong Kong has a
ratio of 1.03 times versus 1.6 for China and 1.46 for the
Asia-Pacific, according to I/B/E/S data.
That valuation attraction has boosted the popularity of Hong
Kong-focused mutual funds.
First Seafront Fund Management Co has over the past 18
months launched 12 mutual funds that can invest in Hong Kong via
the Connect schemes. It has seen rapid inflows into some funds
recently and won't rule out the possibility of suspending
($1 = 6.8577 Chinese yuan)
($1 = 7.7592 Hong Kong dollars)
(Editing by Jacqueline Wong)