(Yicai) May 14 -- Hong Kong’s stock market has climbed 25 percent since the end of January amid a pick-up in investor sentiment and favorable government policies.

The benchmark Hang Seng Index broke through the 19,000-point mark yesterday to close at 19,115.06. It lost 0.22 percent today to finish at 19,073.71. 

The Shanghai Composite Index edged down 0.07 percent to 3,145.77, while the Shenzhen Component Index gave up 0.05 percent to 9,668.73.

Following a period of weak liquidity in Hong Kong stocks, valuations have been low, so an influx of funds has led to a pronounced rebound since last month.

The uptick shows that there is still strong interest in Hong Kong stocks, a strategist at a US investment bank told Yicai, adding that a number of European long-term funds are also interested in the Chinese market but have not taken action yet.

Fund inflows into the previously most popular Asian stock markets such as Japan and India has eased, and investors are now more inclined toward the Chinese market, according to research from Goldman Sachs.

So far this year, there have been net capital inflows of USD29 billion through the southbound connect into Hong Kong stocks and net foreign capital inflows of USD11 billion into Chinese mainland-listed shares, with low valuations and expectations of a rebound seen as the main drivers.

Japan has had net inflows of USD31 billion and South Korea USD15 billion, while India and countries in the Association of Southeast Asian Nations has had net outflows.

Chinese policymakers are considering exempting individual investors from tax on dividends from Hong Kong stocks purchased through the stock connect scheme, according to recent media reports.

The tax is levied at 20 percent, so its removal would likely boost the flow of mainland funds into Hong Kong stocks, the investment bank strategist noted.

Regulators in the mainland recently introduced policies to promote mutual access and enhance liquidity in the Hong Kong market, and since April there has been a net inflow of funds from the mainland into Hong Kong stocks every trading day.

Editor: Tom Litting