On Monday, Hong Kong’s Hang Seng fell by 2.7% following the US stock’s decline. Chinese investors bought 10.2 billion yuan ($1.6 billion) of Hong Kong’s shares, thus preventing Hong Kong’s stock market from the bearish pressure.
The Hang Seng pared losses to end down 1.1%.
Chinese funds prefer to buy shares of Chinese companies in Hong Kong. Thus, dual-listed companies such as Bank of China Ltd. and China Shenhua Energy Co. have long been priced at a discount to their Shanghai shares, while a strengthening yuan against the Hong Kong dollar makes them cheaper as it is.
This boosts returns, making the trade even more attracting. The Hang Seng index climbed by 18% over the past two months, compared with a 5.6% increase in the Shanghai Composite index.
Banks and airlines led gains, with China Citic Bank Corp. rising by 3.9% and Air China Ltd. climbing by 2.7%. Stocks of both companies are more than 30% cheaper in Hong Kong than on the mainland.