With market sentiment still fragile, offshore investors sold Chinese shares through the Shanghai-Hong Kong Stock Connect at a record pace Monday.
Data from the Hong Kong Exchanges showed that foreign investors sold a net 13.523 billion yuan ($2.2 billion) of mainland stocks on July 6, with gross sales at 18.455 billion yuan and purchases at 4.932 billion yuan. According to Bloomberg, that’s the biggest net sales recorded since the program started last November.
On the same day, Chinese investors were also net sellers of Hong Kong shares worth 2.232 billion Hong Kong dollars ($299 million), as pressure mounts in the mainland for investors to unwind their margin positions.
With Chinese shares still commanding a premium over their Hong Kong-listed counterparts, analysts said mainland shares would continue to be under heavy selling pressure despite government’s aggressive stance to stabilize the market and soothe the frayed nerves of retail investors.
According to Bloomberg, a Hang Seng index tracking the premium commanded by Chinese shares on dual-listed stocks jumped 10% Monday, the biggest rise since data began, as shares in the former British colony crumbled after Greece thumbed down the bailout package in a referendum Sunday.
In its recent weekly notes, BlackRock wrote:
“While an announcement over the weekend suggests that Chinese officials will institute several additional programs to help stabilize markets, Chinese stocks are still vulnerable as valuations remain at a significant premium and retail momentum has decidedly reversed.”
This sentiment was echoed by strategists at Bank of America Merrill Lynch in a note released Monday:
“Fundamentally, with SHCOMP ex. banks trading at 31x trailing 12-month earnings, the market appears very expensive to us. We assess that there is still a fairly high chance that market may fall sharply again at certain point over the next few months, unless the PBoC makes an open-ended commitment to support the market.”
The Shanghai Composite Index, which opened nearly 4% lower Tuesday, was last seen down 1.5%, according to MarkeWatch. Since its June 12 peak, the index has lost around 27%.
Before this recent rout, Chinese shares have been rallying, peaking at seven-year highs.
Photo credit: Jessie Wang via Flickr