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