Why Mainland Chinese Investors are Eyeing Hong Kong MarketThe stock index in Shanghai ended 2018 as the world's worst market performer

The Chinese stock market has been going through a rough patch lately. It was the world's worst performer in 2018, a repeat performance of the previous year. This is perhaps one of the biggest reasons investors in China's market are keen to diversify assets and explore Hong Kong.

To give context, the stock index in Shanghai fell by 24.6 per cent over 12 months. Its currency, Yuan, fell by 5.4 per cent, making it the third biggest loser among the 11 most used Asian currencies after the Indian Rupee and the Indonesian Rupiah.

A recent survey by the Hong Kong Investment Funds Association (HKIFA), a non-profit-making industry organisation that represents the fund management industry of Hong Kong, has found that 87 per cent residents in the Greater Bay Area put Hong Kong stocks as among the top three investment choices, followed by Hong Kong property (42 per cent).

Where interest lies

As part of the survey, the HKIFA interviewed online 1,026 residents (aged between 18 and 55), including 411 from Hong Kong, 200 from Guangzhou, 207 from Shenzhen and 208 from Zhuhai. The Greater Bay Area is part of a Chinese government's scheme, which aims to integrate Hong Kong with 10 cities in the Pearl River Delta and turn it into an economic and business hub. The respondents had either HK$300,000 (around US$ 38,000) or 300,000 yuan (around US$ 43,000) or above in liquid assets.

The residents of Guangdong, which includes Guangzhou, Shenzhen and Zhuhai, prefer investing in Hong Kong stock in the next 12 months, the survey says. They utilized over 30 per cent of their assets for offshore investment in the third quarter of last year, of which 12 per cent went to the Hong Kong market.

Offshore opportunities

Guangdong investors are also interested in other offshore investment opportunities. Over 25 per cent of the respondents choose insurance policies offered in Hong Kong and another 27 per cent indicated that they are interested in public funds which invest in mature markets.

Mainland Chinese investors are more keen on investing in the Hong Kong stock market, rather than the other way around, the association said.

Hong Kong respondents allocated 19 per cent of their assets for offshore investment, of which 8 per cent went to mainland China markets.

For Hong Kong investors, on the other hand, stocks listed in the city remained the top investment choice, at 54 per cent. They would like to allocate 17 per cent to Hong Kong bonds and 12 per cent to mainland stocks, according to the survey.

Top focus areas

When it comes to top choices, Hong Kong stocks are at the top, with Hong Kong investors saying they would like to allocate 54 per cent to them; and 12 per cent to Mainland stocks.

For Guangdong mainland investors, the preferred mix is more balanced than those taken by their Hong Kong counterparts—Mainland stocks came first, at 32 per cent; followed by Mainland bonds, at 22 per cent. Their preferred allocation to Hong Kong stocks and bonds is 20 per cent and 16 per cent, respectively.