In­vestors think big as small-caps fuel rally

China Daily (Canada) - - CHINESE TRAIN PROJECTS AROUND THE WORLD - By XIE YU in Hong Kong xieyu@chi­nadaily.com.cn

Small-cap stocks may be the cham­pi­ons of the eq­uity mar­ket rally on the Chi­nese main­land, but for­eign in­vestors are play­ing it safe with a fo­cus on big­ger, bet­ter-known is­sues.

“It’s a dif­fi­cult time for value in­vestors, who base their in­vest­ment de­ci­sions on fun­da­men­tals,” said Steve Yang, A-share strate­gist with UBS Se­cu­ri­ties Co Ltd.

An­a­lysts said that A shares are un­der­weighted by most over­seas funds. What th­ese in­vestors are stash­ing in their port­fo­lios are blue chip stocks with solid fun­da­men­tals and rea­son­able val­u­a­tions that have also un­der­per­formed the bench­mark in­dexes.

“We play by dif­fer­ent rules from our for­eign friends,” said a do­mes­tic eq­uity fund manager in Shen­zhen.

Play­ing by the Chi­nese bro­kers’ rules, “we like small­caps be­cause their price volatil­ity of­fers more chances to make a fast buck by those who know the mar­ket and its nu­ances.”

“In con­trast, for­eign in­vestors, mostly in­sti­tu­tions, tend to em­pha­size on fun­da­men­tals. They care more about such in­di­ca­tors as the earn­ings out­look, re­turn on as­sets and div­i­dends,” he said.

For­eign in­vestors want to join the bull mar­ket party, but they pre­fer to do so on their own terms with “safer” stocks.

“Rea­son­able val­u­a­tion, a gen­er­ous re­turn on eq­uity, large mar­ket cap­i­tal­iza­tion and good liq­uid­ity are es­sen­tial el­e­ments in mak­ing a share at­trac­tive to for­eign in­vestors,” said Yang.

A case in point is Shang­hai-listed Shang­hai In­ter­na­tional Air­port Co Ltd, which was closed to for­eign in­vest­ment on Tues­day af­ter the over­seas own­er­ship level hit 28 per­cent, which is very close to the 30 per­cent limit im­posed by China’s se­cu­ri­ties reg­u­la­tions.

The limit ap­plies to all hold­ings ac­quired through the Qual­i­fied For­eign In­sti­tu­tional In­vestor or Ren­minbi QFII pro­grams or through the Shang­hai-Hong Kong Stock Connect.

The limit for any in­di­vid­ual for­eign in­vestor is 10 per­cent.

The stock ex­change in Hong Kong said that buy­ing or­ders were halted be­fore for­eign in­vestors could hit the red line of 30 per­cent, to avoid com­pul­sory sell­ing of their stocks.

Sell or­ders ac­cepted.

Buy­ing by for­eign in­vestors can restart once the level falls

are

still

be­ing be­low 26 per­cent, ex­change said.

Shang­hai In­ter­na­tional Air­port shares soared 7.2 per­cent to 30.54 yuan ($4.99) on Wed­nes­day.

Sec­tors in­clud­ing con­sump­tion, ma­te­ri­als, In­ter­net and tech­nol­ogy, and fi­nan­cial ser­vices are be­ing over­weighted by for­eign in­vestors, ac­cord­ing to Yang.

A re­search note by Gold­man Sachs Group Inc last week said that it rec­om­mended re­main­ing over­weight in in­sur­ers, bro­kers, prop­erty and tech­nol­ogy firms.

Th­ese shares are well-po­si­tioned in an eas­ing liq­uid­ity en­vi­ron­ment and of­fer in­vestors ex­po­sure to growth in China, the bank said.

Cap­i­tal has been flow­ing into the main­land’s stock mar­ket from over­seas in­vestors since the Shang­hai-Hong Kong Stock Connect kicked off late last year.

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