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The stock market is booming and investors are happy. But investors must also consider when the tide ebbs so that they can retain their assets when the market changes.
One way is to compare the amount of southbound funds and the changes in the total turnover of Hong Kong stocks. If investors believe that the market’s rise this time is a “capital market” and that capital drives the stock market to rise, if the amount of southbound capital and the total turnover of Hong Kong stocks continue to decline, it is when the stock market begins to normalize. There is a volatility but no increase” phenomenon.
Another indicator for judging that “Auntie” loves Hong Kong stocks is the premium ratio of “Hong Kong stock ETFs” that are listed on mainland A shares and specifically invest in Southbound Stock Connect. Many investors believe that the ETF itself tracks related assets and indexes, and the tracking error should be zero, because if the ETF price is different from the asset price it tracks, there is no risk arbitrage space. However, this is a scenario in textbook theory. In actual circumstances, you must also consider transaction costs, whether there is a difference in the difficulty of investors buying ETFs and their assets, and whether there is a lock-up period for ETFs.
Recently, although there is a lot of southbound funds, there is always a threshold of RMB 500,000. A large number of mainland aunts with small principals cannot make profits from the rising tide of Hong Kong stocks. The second priority is to bury their hands in these Hong Kong stock ETFs. Make these ETFs appear premium.
Take the Huatai Bai Rui CSI Southbound Stock Connect 50 ETF (513550), which has a relatively high turnover in Hong Kong stock ETF recently, as an example. Since the beginning of the year, its price has always exceeded its net unit value (NAV). It closed at 1.177 yuan on January 19, which is higher than the net value of the day. 1.0862 yuan is about 8% higher, but by the 20th, it has dropped significantly, only about 0.9% higher. It can be seen that it is not the large investors who are arbitrage, or the mentality of retail investors to continue to chase goods has begun to weaken.
Using the premium ratio of Hong Kong stock ETFs in A-shares, plus observing the speed of Beishuiyong Port and the changes in Hong Kong stock turnover, the three-pronged approach will make it easier to judge when the water retreat begins.
Xu Feng
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