(Bloomberg) -- Chinese investors have driven Hong Kong's stock surge in November, buying a record amount of equities in the city even as concern grows that the rally is starting to lose momentum.
Net flows into Hong Kong's stock market swelled to 70.2 billion yuan ($10.6 billion) this month, the most since the first equity investment channel between the mainland and the city was opened in 2014. That's seen the Hang Seng Index jump 3.3 percent in November as heavyweights Tencent Holdings Ltd. and Ping An Insurance (Group) Co. helped it touch a decade-high.
But despite the vote of confidence from across the border, signs of fatigue are growing.
After failing to hold gains above the key 30,000-point level, the Hang Seng capped its steepest four-day decline in three months on Thursday. With only one month left in 2017, investors may look to cash in some of their winnings from the index's 33 percent rally this year. On top of that, there's concern China will curb the pace of flows into Hong Kong equities.
“The benchmark may have hiked too fast,” said Linus Yip, a strategist at First Shanghai Securities in Hong Kong. “Funds are likely to become less aggressive and take profit toward year-end as they probably have achieved full-year targets.”
Approvals Halted
The Hang Seng fell 1.5 percent on Thursday, as some of the month's best performers slumped following the U.S. tech selloff. Ping An slid 3.8 percent, while Tencent -- which has more than doubled in value this year -- lost 3.3 percent. AAC Technologies Holdings Inc. retreated 6.2 percent, paring its monthly advance to 9.5 percent.
This week's wider pullback was triggered in part by concerns Beijing is growing uncomfortable with the large flows from the mainland into Hong Kong.
China's securities regulator has stopped approving mutual funds that plan to invest mainly in Hong Kong stocks, people briefed on the matter said earlier this week. China and Hong Kong also agreed Thursday to introduce an identification system for investors in the former British colony who are buying mainland shares.
If Hong Kong stock buying is discouraged, Chinese investors face few appealing alternatives.
Markets on the mainland performed poorly in November, with the Shanghai Composite Index falling 2.2 percent in its worst month this year. Concern about a bond rout -- 10-year government yields are near three-year high -- and government efforts to cool gains in some of the top performers have worsened sentiment toward domestic equities.
--With assistance from Amy Li
To contact the reporters on this story: Emma Dai in Hong Kong at edai8@bloomberg.net, Kana Nishizawa in Hong Kong at knishizawa5@bloomberg.net.
To contact the editors responsible for this story: Richard Frost at rfrost4@bloomberg.net, Emma O'Brien
©2017 Bloomberg L.P.
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