By Chong Koh Ping and Joanne Chiu
Investors from mainland China have spent billions of dollars buying beaten-down shares in Hong Kong-listed companies subject to a U.S. government blacklist.
Buyers using a trading link known as Stock Connect have bought the equivalent of a net $15.8 billion in Hong Kong shares in the first nine trading days of this year, according to Wind, with a heavy concentration on stocks targeted by the U.S.
More than a quarter of the funds went to China Mobile Ltd., the country's largest telecommunications carrier, while investments in oil major Cnooc Ltd. accounted for nearly one-tenth of total inflows in the period to Jan. 14.
The overall net southbound buying through Stock Connect is likely to hit a record for January, since it is already nearly 90% of the record hit in March.
Justin Tang, the head of Asian research at United First Partners, said the U.S. sanctions offered a good buying opportunity for non-American investors. "All these investors who can hold on to these Chinese stocks are snapping up bargains," he said.
"It's a very smart move by Chinese mainland investors because all these stocks are largely domestically focused," Mr. Tang added. "Nothing has changed about their fundamentals. It's just that U.S. investors can't buy."
On Thursday, some of the targeted companies jumped. Shares in China's top train maker, CRRC Corp.; Cnooc; and the country's biggest chip maker, Semiconductor Manufacturing International Corp., rose 4.8% to 7.4%, while the broad Hang Seng Index edged up 0.9%. China Mobile added 2.6%, , extending a recent rebound, though its stock remains below where it was in November, when investors first began to worry about its blacklisting.
Shares of Alibaba Group Holding Ltd. and Tencent Holdings Ltd. rose 5% and 5.6% respectively, after The Wall Street Journal reported that the U.S. government was expected to let Americans continue investing in the duo after considering whether to add them to its prohibited list.
An executive order signed by President Trump in November bans Americans from investing in companies the U.S. government says aid China's military, intelligence and security services. U.S. investors are banned from buying securities in blacklisted companies starting Jan. 11, and have until Nov. 11 to shed their holdings.
Strength in China's currency, which is known as both the yuan and the renminbi, has also whetted Chinese investors' appetite for Hong Kong-listed stocks, said Paul Sandhu, head of multiasset quant solutions for Asia-Pacific at BNP Paribas Asset Management.
"This is an opportune time for them to take the cash out of the renminbi to invest in other markets. And Hong Kong is the nearest market that they know," he said.
Separately on Wednesday, the city's $13.5 billion Tracker Fund reversed its earlier decision to stop making new investments in blacklisted securities such as China Mobile and said it would keep closely tracking Hong Kong's benchmark Hang Seng Index.
The fund's manager, a unit of State Street Corp., said it had decided that it wasn't a U.S. entity in regard to the management of the fund and neither was the fund itself. It said the fund wasn't an appropriate investment for U.S. buyers.
The initial move by State Street Global Advisors Asia Ltd. had been criticized by Joseph Yam, a cabinet member of the Hong Kong government and former head of the city's monetary authority. He said that if the fund couldn't closely track the Hang Seng, the fund manager wasn't suitable for the job.
Write to Chong Koh Ping at firstname.lastname@example.org and Joanne Chiu at email@example.com
(END) Dow Jones Newswires
January 14, 2021 06:46 ET (11:46 GMT)Copyright (c) 2021 Dow Jones & Company, Inc.