24 March 2019
Some Chinese medicine plays on the Shanghai bourse are also listed in Hong Kong. Photo: Reuters
Some Chinese medicine plays on the Shanghai bourse are also listed in Hong Kong. Photo: Reuters

Defense, liquor and medicine plays stand out amid market link

Military equipment, white wine and Chinese medicine stocks have been under the spotlight since China announced last week a pilot program linking the Hong Kong and Shanghai stock exchanges over the next six months, as these plays are hard to find in the Hong Kong stock market.

However, market analysts have advised investors to remain cautious as they still have downside risks.

“Military equipment makers are a special field. There is speculation about the concept from time to time, but I don’t think it’s a gem in the stock market,” Michael Wong, director of Convoy Investment Services Ltd. and Convoy Asset Management Ltd., told the Hong Kong Economic Journal’s EJ Insight.

But Eugene Law, director of business development division at China Galaxy Securities Co. Ltd., says he will not be surprised if military equipment makers become a favorite of Hong Kong investors.

“The central government has said it will increase military expenses this year, so the concept is interesting,” Law said.

But he notes there are also a lot of risks involved, as investors can only assess the prospects of individual stocks up to a certain point due to the secretive nature of the the military industry.

CSSC Steel Structure Engineering Co. Ltd. (600072.CH), one of the leading plays in the sector, saw its stock price inch up 0.43 percent to 6.96 yuan (US$1.12) on Monday from 6.93 yuan on April 9, the day before Premier Li Keqiang announced the bourse connection at the Boao Forum.

As for liquor stocks, both experts say that the sector will continue to face headwinds amid the central government’s frugality drive.

“For spirits, it depends on the market demand. The central government’s anti-graft campaign is still having an impact on the demand for luxury products,” Wong said. “I am a bit reserved on the spirit stocks, especially when the Chinese economy is not doing very well.”

Kweichow Maotai Co. Ltd. (600519.CH) saw its stock price climb 6.74 percent to 174.36 yuan during the period, while Wuliangye Yibin Co. Ltd. (000858.CH) surged 3.69 percent to 17.97 yuan.

Wong is more optimistic about Chinese medicine stocks amid the central government’s support for the medical sector.

“On the policy front, Chinese medicine will get a boost from government plans to reform the sector. But we still have to see whether the demand will sustain and the competitiveness [of individual Chinese medicine makers] is also a concern,” he said.

Law noted, however, that some Chinese medicine plays are also listed in Hong Kong, so the interest in their mainland counterparts may not be so strong.

Yunnan Baiyao Group Co. Ltd. (000538.CN), a Chinese medicine play, rose 4.52 percent to 88.60 yuan from 84.77 yuan on April 9.

The Shanghai Composite Index grew 1.2 percent from 2,105 points on April 9 to 2,131 points at Monday’s close.

– Contact the writer at [email protected]



EJ Insight reporter

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