New link at­tracts big in­vestors

China Daily (Hong Kong) - - BUSINESS | MARKETS -

The Shen­zhen-Hong Kong Stock Con­nect, which launches to­day, will ben­e­fit mid- and large-cap growth stocks in the long term, par­tic­u­larly those from con­sump­tion-driven sec­tors, said an­a­lysts.

The SZ-HK stock con­nect will cover 881 Shen­zhen stocks and 102 Hong Kong stocks. Start­ing to­day, 76 per­cent of the A-share mar­ket cap and 87 per­cent of Hong Kong mar­ket cap will be mu­tu­ally ac­ces­si­ble.

The con­nect will see more north­bound in­ter­est in mid- and large­cap growth stocks, ac­cord­ing to Gao Ting, an­a­lyst with UBS Se­cu­ri­ties.

“The ex­ist­ing pro­grams that al­low over­seas in­vestors to in­vest in main­land mar­kets, QFII/RQFII and the north­bound Shang­hai-Hong Kong Con­nect, show that out­side in­vestors have a clear pref­er­ence for lower val­u­a­tion mid- and large-caps in fi­nan­cials and tra­di­tional con­sumer sec­tors, such as foods and bev­er­ages, home ap­pli­ances and au­tos,” said Gao in a lat­est re­search note.

An­a­lysts said that over­seas in­vestors, many of whom are in­sti­tu­tional in­vestors, are fo­cus­ing more on sta­ble and steady yields in­stead of a short-term, spec­u­la­tive ap­proach when trad­ing A-shares, so they fa­vor con­sump­tion-driven com­pa­nies, par­tic­u­larly those play­ing a lead­ing role in their re­spec­tive field.

The Shen­zhen mar­ket has a high con­cen­tra­tion of tech­nol­ogy stocks, 20 per­cent of its to­tal mar­ket cap­i­tal, of­fer­ing a wide range of choices to in­vestors with a strong in­ter­est in this fast-grow­ing sec­tor in China, said a re­search note from Haitong Se­cu­ri­ties.

Food and bev­er­age play­ers, such as Chi­nese white liquor ( bai­jiu) mak­ers, dairy goods mak­ers, and snacks mak­ers are also among in­vestors’ fa­vorite op­tions.

Over the past 10 days since the launch of the SZ-HK stock con­nect was an­nounced, share prices of lead- ing com­pa­nies in the food and bev­er­age sec­tor have risen over 5 per­cent. For in­stance, Wu­liangye Yibin Com­pany Lim­ited gained more than 5.8 per­cent, from some 34 yuan ($4.94) per share to more than 36 yuan per share.

An­a­lysts said com­pa­nies in sec­tors which are rarely seen in Hong Kong are also likely to win over­seas in­vestors’ fa­vor be­cause they are sup­ple­men­tary to ex­ist­ing choices in Hong Kong’s mar­ket.

These sec­tors in­clude ma­chin­ery, de­fense-re­lated high-tech, pharma- ceu­ti­cals, and pol­icy-driven trade and in­fra­struc­ture play­ers, in­clud­ing those that have ben­e­fited from the Belt and Road Ini­tia­tive and coun­try­wide ur­ban­iza­tion.

Liu Xiaon­ing, an­a­lyst with Shen­wan Hongyuan Se­cu­ri­ties, said that Shen­zhen-listed com­pa­nies that have sig­nif­i­cant mar­ket share and have dis­closed win­ning bids for in­fra­struc­ture pro­jects are likely to re­al­ize sta­ble and steady in­come and prof­its in the long run.

Over­seas in­vestors, how­ever, may not de­cide to par­tic­i­pate in the mar­ket im­me­di­ately with large in­vest­ments as they did when the Shang­hai-Hong Kong Stock Con­nect was launched, be­cause the over­all sit­u­a­tion of the A-share mar­ket is sig­nif­i­cantly dif­fer­ent now, said an­a­lysts.

“When the Shang­hai-Hong Kong Stock Con­nect was launched, the A-share mar­ket was so heated that few in­vestors fore­saw the risks of down­ward pres­sure. In­vestors, do­mes­tic and over­seas, were quite bullish about the mar­ket and some­how less ra­tio­nal than they should have been. Reg­u­la­tions, mar­ket con­di­tions, and com­pli­ance were not kept to as high stan­dards as they are now. In short, the A-share mar­ket is now with more ra­tio­nal and value in­vestors. There won’t be in­vestors flock­ing to­ward the SZ-HK con­nect. More will pa­tiently study, re­search, and make de­ci­sions,” said a re­search note from Ping An Se­cu­ri­ties.

The ex­ist­ing pro­grams that al­low over­seas in­vestors to in­vest in main­land mar­kets ... show that out­side in­vestors have a clear pref­er­ence for lower val­u­a­tion mid- and large-caps in fi­nan­cials and tra­di­tional con­sumer sec­tors, such as foods and bev­er­ages, home ap­pli­ances and au­tos.”

Gao Ting, an­a­lyst with UBS Se­cu­ri­ties

Carl­son Tong, chair­man of the Hong Kong Se­cu­ri­ties and Fu­tures Com­mis­sion

Liu Shiyu, chair­man of the China Se­cu­ri­ties Reg­u­la­tory Com­mis­sion

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