Investors in the United Kingdom are evincing interest in buying A-shares of large Chinese enterprises via Hong Kong once the Shanghai-Hong Kong Stock Connect program gets underway, according to a senior executive with Old Mutual plc group.
“Investors in the UK often ask us about the Shanghai-Hong Kong Stock Connect… They are paying attention to it, especially as the A-share market has low valuations now,” said Carol Wong, Asia-Pacific managing director at Old Mutual, the London-based financial institution.
“Investors keep asking us how they can make good use of the opportunity,” she said.
Overseas investors will generally prefer medium or large companies that they are familiar with, rather than unknown firms, given concerns that many Chinese firms may not meet international standards in areas such as accounting and auditing practices, Wong said.
She said the Stock Connect scheme will have a positive impact on the equity market in both Hong Kong and Shanghai after it kicks off.
She declined to comment when asked if she expects the amount of northbound and southbound investment will exceed the quota in a short time after the program is launched on Monday.
But she is optimistic about the success of the scheme.
“Market sentiment is good. And because of some political reasons and other rational and irrational factors, we think the equity market will benefit” after the long-awaited through-train, Wong said.
Joshua Crabb, head of Asian Equities at Old Mutual Global Investors, also said the mutual market access program will mean more choices for investors.
“It opens up the capital market… People always ask if it benefits the A- or H-share market. I don’t think it’s a very important question. I’m not really sure if I know the answer to that. What it does mean is there will be bigger opportunities to invest in companies that they couldn’t invest in before,” Crabb said.
It’s difficult to speculate on the fund flows, but companies that are undervalued and attractive are likely to be the investment targets, he said.
He also said the Stock Connect will reduce the role of the Renminbi Qualified Foreign Institutional Investor (RQFII) program as the Chinese market opens up further.
“It’s a natural step… It has happened in many markets. As they open up more and more until they are totally open… the old ways of doing [business] will become less important,” Crabb said.
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