GF Securities Aaron Guo Explains the Perks of Hong Kong Stock Exchange
AaronGuo is the Strategic Business Development General Manager for GF Securities ( Canada) Company Limited, the first Chinese securities firm to establish a wholly-owned subsidiary in Canada. In a recent interview at the company’s Vancouver headquarters, Guo explained the advantages of investing in stocks listed on The Stock Exchange of Hong Kong (SEHK).
First, over the past two years the USD exchange rate is in an obvious upward cycle, while the exchange rate of the RMB against the USD is dropping in an orderly manner. As the HKD is pegged to the USD, assets in the form of Hong Kong stocks can better resist exchange rate risk when the RMB is depreciating, particularly since 2017, when the Chinese government began imposing further restrictions on the outflow of capital. For those wealthy and middle class mainland China investors who want to hedge against the devaluation of RMB assets, now there are legitimate and more convenient ways to invest in the Hong Kong stock market through the Hong Kong Stock Connect.
Under the pressure of RMB devaluation, mainland China funds are continuously moving southward to support Hong Kong stocks. It is the consensus of mainland investment institutions to increase the proportion of Hong Kong stocks in their investment. Given that social security funds, public offering funds and insurance funds are planning to significantly increase the percentage of Hong Kong
stocks in their asset allocation, mainland funds are expected to raise strong demands for continuously investing into the Hong Kong stock market.
Second, Hong Kong stocks are undervalued based on the following statistics: by the end of 2016, the Hang Seng Index had a price-to-earnings ( P/ E) ratio of nearly 12.5, which is lower than A-shares of the Shanghai Shenzhen CSI 300 Index P/E ratio of about 15, as well as the S&P 500’s P/E ratio of 21.5. Further justifying the valuation using noteworthy ratios, the price- to- book ( P/ B) ratio for the Hang Seng Index was 1.4, lower than the Shanghai Shenzhen CSI 300 Index P/B ratio of 1.8, and well below the S&P 500’s P/B ratio of 2.9.
As for these investors who prefer safe and stable investments, there are some high dividend blue-chip companies, especially the state-owned enterprises (SOES) of China with shares listed in local markets (offering A-shares mainly available to local Chinese only) as well as on SEHK, where locals and foreign investors alike can trade stocks known as H-shares. On the one hand, mainland Chinese investors are very familiar with these H-shares companies and the stocks involving the restructuring of SOES will be opportunities deserving special attention in 2017. On the other hand, it is more profitable to invest in H-shares than A-shares because many H-shares can often be purchased at a discount up to 20% or even 40%. For example, the H-shares stock dividend of China’s big four state-owned banks exceeds 5%. Investors can expect to achieve great capital appreciation by investing in such stocks in the long run, which are both secure and enjoy very competitive dividends.
For investors who have already transferred funds outside of China and worry that future investments in A- shares will be difficult to withdraw, Guo clarified that GF Securities ( Canada) Company Limited has solved this problem for overseas Chinese by providing access to Hong Kong stocks. With GF Securities (Canada) Company Limited, in addition to the stocks, bonds and funds in the US and Canada markets, investors can also invest in Hong Kong stocks and even A-shares via Shanghai-hong Kong Stock Connect and Shenzhen-hong Kong Stock Connect. In the long run, A-shares and Hong Kong stocks can offer better investment opportunities than the North America market. GF Securities (Canada) can offer investors with more options for preserving and increasing their investment value, in a way which is both more secure and convenient.