Hang Seng posts longest win streak; analysts weigh possible correction

The rise inside the Hang Seng, which has risen more than 6 percent since its streak began in late December, was largely driven by large inflows into Hong Kong, analysts told CNBC.

The introduction of the Shenzhen-Hong Kong Stock Connect at the end of 2016 was credited among the reasons for the Hang Seng’s rally last year. The program, similar to the Shanghai-Hong Kong Connect, allows investors on the mainland as well as Hong Kong to invest in stocks listed in both markets.

Capital by the mainland has continued to play a role in driving the Hang Seng higher inside the first two weeks of 2018.

According to Kenny Wen, a Hong Kong-based strategist at Everbright Sun Hung Kai, mainland investors upbeat about Hong Kong as well as optimistic retail investors inside the territory have created a “feast of liquidity” inside the market.

Also contributing to in which liquidity is usually the reallocation of capital by global funds keen to enhance their exposure to Hong Kong due to its lower valuations relative to the U.S. as well as Europe, Wen said.

The Hang Seng is usually currently trading at a cost-to-earnings ratio of 14.16, a figure in which is usually significantly below the Dow Jones industrial average’s 22.83 or even the Nikkei 225’s 19.62.

Mainland flows into Hong Kong under the connect programs accounted for more than 6 percent of market turnover last year, as well as they are likely to “increase further inside the years ahead,” analysts at Credit Suisse said in a December note on the outlook for greater China markets.

“[in which] means in which the Hong Kong market performance might be increasingly driven by the interaction of both the U.S. market performance (influencing global liquidity) as well as A-share market performance (influencing mainland liquidity),” Credit Suisse analysts added, referring to stocks traded in mainland markets.

Amid the fresh Year cheer, analysts also warned about a potential correction inside the works for the market — although they indicated This particular might not be imminent.

“There’s still time on our hands when This particular comes to [a correction in] Hong Kong,” said Andrew Clarke, director of trading at Mirabaud Asia.

Hong Kong stocks typically rally around the Lunar fresh Year, which begins on Feb. 16 This particular year, Clarke said, suggesting in which a slight correction could follow in which run up.

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