H shares seen as win­ners on new stocks ‘through train’

China Daily (Hong Kong) - - HK | BUSINESS - By DUAN TING in Hong Kong tingduan@chi­nadai­lyhk.com

The long-awaited Shen­zhenHong Kong Stock Con­nect — the sec­ond stocks trad­ing link be­tween the Chi­nese main­land and the SAR which kicks off on Mon­day — will breathe new life into the eq­uity mar­ket with south­bound stocks likely to emerge as win­ners, driven by a host of fac­tors, in par­tic­u­lar, the cheaper val­u­a­tion of H shares, ac­cord­ing to mar­ket pun­dits.

They be­lieve that the cap­i­tal flood­ing out of the main­land’s prop­erty and bond mar­kets would be prin­ci­pally plowed into Hong Kong dol­lar-de­nom­i­nated as­sets, given the con­tin­ued down­ward slide of the ren­minbi, which has hit eight-year lows against the green­back in the past two weeks.

In­vestors would be star­ing at a brand new stock mar­ket be­ing spawned across the na­tion, with a po­ten­tial mar­ket value of 8 tril­lion yuan ($1.16 tril­lion).

Un­der the new cross-bound­ary stocks “through train”, the to­tal in­vest­ment quota of 550 bil­lion yuan will be re­moved, but a daily limit of 13 bil­lion yuan will still be slapped on over­seas in­vestors trad­ing in Shen­zhen-listed stocks, while main­land in­vestors can trade up to 10.5 bil­lion yuan of Hong Kong stocks.

For nor thbound in­vest­ment, mar­ket ex­perts said the main­land’s mar­ket poli­cies and re­forms will be the key cri­te­ria for in­vestors un­der the new stocks link, which comes slightly more than two years af­ter the launch of the Shang­hai-Hong Kong Stock Con­nect.

The main­land and Hong Kong, they’re con­vinced, will lead the re­gion’s per­for­mance in eq­uity mar­kets, with the re­cov­ery in com­pany earn­ings, at­trac­tive val­u­a­tions and buoy­ant liq­uid­ity pro­pel­ling both the south­bound and north­bound fund flows de­spite the fact that over­seas in­vestors are less en­thu­si­as­tic than their main­land peers, said global fi­nan­cial ser­vices group Credit Suisse.

Earn­ings-driven en­ter­prises, es­pe­cially the in­ter­net com­pa­nies listed in Shen­zhen, would be a big draw for in­vestors hold­ing high re­gard for tech star­tups that have be­come a trade­mark of Shenz h e n’s u n s t o p p a b l e d r i v e to­ward the dig­i­tal and in­for­ma­tion age.

Ac­cord­ing to Jack Siu, an in­vest­ment strate­gist for Asia Pa­cific at Credit Suisse, feedback from their clients has shown that main­land in­vestors are more con­cerned with snap­ping up Hong Kong stocks than the other way round.

For Hong Kong stocks, he would go for those of­fer­ing high div­i­dend yields and “A+H” dis­counts, as well as cur­rency-hedg­ing shares, such as in­sur­ance com­pa­nies and main­land en­ter­prises with greater Hong Kong-dol­lar, in­stead of ren­minbi ex­po­sure.

Ge­of­frey Wong , head of global emerg­ing mar­kets and Asia Pa­cific eq­ui­ties at UBS As­set Man­age­ment, ruled out an “overnight boom” in the in­flow of funds into Hong Kong through the lat­est stocks link.

In his view, it would take a longer time to build up the en­tire process un­less re­stric­tions that ap­ply to the new con­nect are dereg­u­lated quickly. But, the glit­ter of the Hong Kong eq­uity mar­ket will con­tinue to be a draw among in­vestors go­ing af­ter Hong Kong dol­lar-de­nom­i­nated as­sets.

For A shares, Wong prefers the e-com­merce, mobile in­ter­net, ed­u­ca­tion, health­care and in­sur­ance sec­tors, but noted that health­care and in­ter­net stocks in the Shen­zhen mar­ket and the con­sumer sec­tor in the Shang­hai bourse have emerged as the hottest picks.

UBS As­set Man­age­ment is launch­ing funds to take ad­van­tage of the flow of north­bound funds and al­low over­seas in­vestors to ac­cess A shares. It will also look for op­por­tu­ni­ties to launch new prod­ucts for main­land in­vestors in Hong Kong stocks, Wong said.

Jiang Youheng, chief strate­gist at Guo­tai Ju­nan In­ter­na­tional Hold­ings Ltd, be­lieves that H shares stand to ben­e­fit greatly from the surge in the out­flow of main­land funds in the wake of some of the most dras­tic mea­sures ever taken by the main­land author­i­ties ear­lier this year to rein in run­away prop­erty prices, and with no signs of them eas­ing.

He ex­pects Hong Kong’s bench­mark Hang Seng In­dex (HSI) to hit 26,000 points next year, with the Hang Seng China En­ter­prises In­dex reach­ing 11,000 points and the Shang­hai Com­pos­ite In­dex climb­ing to 3,600.

For Shen­zhen-listed stocks, Jiang fa­vors sec­tors re­lat­ing to con­sump­tion up­grade and health­care, TMT (tech­nol­ogy, me­dia and tele­coms) and new en­ergy.

Daniel Lo, man­ag­ing di­rec­tor of Zhong­tai Fi­nan­cial In­ter­na­tional Ltd, reck­oned that the ex­pected faster pace of US in­ter­est-rate hikes, cou­pled with the high in­vest­ment de­mand among main­land in­vestors and the yuan’s de­pre­ci­a­tion, will fuel the in­flow of funds into the SAR.

He be­lieved that with 75 per­cent of the stocks on of­fer in the Shen­zhen mar­ket be­ing pri­vately owned and mostly growth stocks, north­bound in­vest­ment will grad­u­ally ben­e­fit with a more sta­bi­lized yuan.

Jensen Liang Jinxin, an as­sis­tant an­a­lyst at the over­seas re­search depart­ment of SWS Re­search Co Ltd, said the im­pact of the sec­ond stocks link on the Hong Kong stock mar­ket, as well as the rev­enue of bro­ker­ages, would be lim­ited in the short term, but it would im­prove the qual­ity and liq­uid­ity of small-cap stocks in the medium and long terms.

Com­pared with the Shang­hai-Hong Kong Stock Con­nect, which started in Novem­ber 2014 and which al­lows main­land in­vestors ac­cess to nearly 320 Hong Kong-listed com­pa­nies, main­land in­vestors can trade in only about 100 smaller en­ter­prises in the SAR un­der the Shen­zhenHong Kong link.

The HSI picked up 88.46 points, or 0.39 per­cent, to close at 22,878.23 on Thurs­day, while the Hang Seng China En­ter­prises In­dex jumped 54.25 points, or 0.55 per­cent, to 9,892.31.

The ex­pected faster pace of US in­ter­e­strate hikes, cou­pled with the high in­vest­ment de­mand among main­land in­vestors and the yuan’s de­pre­ci­a­tion, will fuel the in­flow of funds into the SAR.” The im­pact of the sec­ond stocks link on the Hong Kong stock mar­ket, as well as the rev­enue of bro­ker­ages, would be lim­ited in the short term, but it would im­prove the qual­ity and liq­uid­ity of small­cap stocks in the medium and long terms.”

SHEN QILAI / BLOOMBERG

The Shen­zhen-Hong Kong Stock Con­nect, which kicks off on Mon­day, is ex­pected to draw over­seas in­vestors who hold high re­gard for tech star­tups that have be­come a trade­mark of the Shen­zhen bourse.

BLOOMBERG SHEN QILAI /

The Chi­nese main­land and Hong Kong will lead the re­gion’s per­for­mance in eq­uity mar­kets, with the re­cov­ery in com­pany earn­ings, at­trac­tive val­u­a­tions and buoy­ant liq­uid­ity, ex­perts say.

Jensen Liang Jinxin, as­sis­tant an­a­lyst at the over­seas re­search depart­ment of SWS Re­search Co Ltd

Daniel Lo, man­ag­ing di­rec­tor of Zhong­tai Fi­nan­cial In­ter­na­tional Ltd

Newspapers in English

Newspapers from China

© PressReader. All rights reserved.