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Foreign investors' capital movements remain a key area of focus, with the question now being whether these funds will continue to flow out and, if so, where they will land—potentially in safer markets like China and Hong Kong.
During China’s week-long National Day holiday in early October, the mainland stock exchanges are closed, creating a unique situation. Chinese ETFs on the Hong Kong Stock Exchange (HKEX) still trade, but often at a premium or discount to their net asset value (NAV). This mismatch occurs because investors can’t assess the current value of underlying Chinese stocks, leading to uncertainty and potential price deviations.
If Chinese ETFs are trading at a premium, it signals that substantial purchases of Chinese shares could occur when the mainland markets reopen. Given the strong performance in Hong Kong, particularly among Chinese tech stocks, optimism is growing that ETFs will reflect this momentum. For instance, on October 4th, the Hang Seng Index (HSI) climbed by 2.82%, the Hang Seng China Enterprises Index (HSCEI) rose by 3.06%, and the Hang Seng Tech Index (HSTECH) surged 4.99%. Key sectors like Home Improvement Retail (+16.67%) and standout stocks such as SMIC (+29.31%) contributed to the bullish sentiment.
As demand for Chinese ETFs continues to rise, authorized participants (APs) may issue new ETF shares to meet this demand, which could lead to a wave of buying when the Chinese markets reopen. APs will likely adjust their holdings to reflect the ETF’s NAV, potentially sparking a buying frenzy. With the strong market momentum and favorable outlook, investors have a prime opportunity to capture significant gains when the mainland exchanges reopen on Tuesday, October 8th, following the National Day holidays.
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