GF Se­cu­ri­ties Aaron Guo Ex­plains the Perks of Hong Kong Stock Ex­change

CAIFU - - Contents - By Mil­lie Lou

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.

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