INVESTMENT managers on the Chinese mainland, taking advantage of a significant step to open up investment flows in and out of the mainland, are aggressively marketing well-priced Hong Kong shares to mainland investors through stock connect programs.

    The reform, a complete lifting of aggregate investment quotas on both the newly announced Shenzhen-Hong Kong connect program and the existing Shanghai-Hong Kong connect, means mainland investors will be able for the first time to buy unlimited volumes of Hong Kong listed shares.

    At least 23 mainland mutual funds have already been established this year to buy Hong Kong shares via the Shanghai-Hong Kong connect channel, a sharp rise from the seven such funds launched in 2015.

    The Shenzhen-Hong Kong stock connect program is expected to go live by December.

    Money managers say mainland investors can find bargains in Hong Kong compared with the inflated valuations on the Shanghai and Shenzhen stock exchanges.

    This marketing pitch is bolstered by the recent recovery in the Hong Kong’s Hang Seng index, which has gained 25 percent from a bottom hit in February to stand up 4 percent year-to-date, versus a 10 percent fall in the onshore CSI300 index.

    “Compared with U.S., Europe and emerging markets, Hong Kong stocks are in a low-lying land in terms of valuation,” Shi Cheng, co-CIO at First Seafront Fund Management Co., said in an online advertising presentation for a new fund that it says will let mainland investors join the “Hong Kong gold rush.”

    Orient Securities RuiHua Shanghai & Hong Kong Mixed Fund hit its fundraising target on its first day of sales July 28, raising 6.4 billion yuan (US$965 million), the company said in a statement. The fund can invest up to 50 percent of assets in Hong Kong stocks.

    Invesco Great Wall Hong Kong & Shanghai Selected Fund said it achieved a 7.2 percent return in July alone after it added Hong Kong shares to its holdings. The mainland’s benchmark CSI300 index rose 1.6 percent in July.

    Among the fund’s top 10 holdings, eight are Hong Kong-listed firms, with CK Hutchison Holdings Ltd. weighted at 7.1 percent and Tencent weighted at 4.9 percent of assets, according to the fund’s disclosure last month.

    “Regarding the Hong Kong market, we think international investors are too pessimistic toward the mainland, making stock prices there [in Hong Kong] very attractive,” the fund manager wrote.(SD-Agencies)