Hong Kong’s Hang Seng Index has been among the world’s top performers this year, boosted by speculation of an influx of pension funds from China.
Previously, pension fund managers in China are limited to investments in deposits and government bonds. Now, they are able to allocate their holdings to the National Council for Social Security Fund (SSF) for investments in equities.
Hong Kong stocks are likely to be the preferred destination for SSF. As Chinese capital look for investment opportunities offshore, Hong Kong equities have traditionally been the first option. Data shows that Hong Kong stock funds net inflows has been close to 15 billion yuan since the beginning of this year.
SSF investments are focused on 62 Hong Kong-traded stocks, primarily financial and energy companies.
Even after this year’s rally, the valuation of Hong Kong stocks is still lower than the other market indices including the Shanghai Composite Index and S&P 500. The rising inflows of SSF funds will likely support the strong momentum for Hong Kong stocks this year.