Northbound trading has been relatively quiet after an initial spurt following the launch of Shanghai-Hong Kong Stock Connect program last November.
Purchase of eligible Shanghai-listed securities by Hong Kong and other overseas investors has amounted to a total of 105.7 billion yuan, representing an average of around 20 to 30 percent of the daily quota of 13 billion yuan. Limited knowledge about A shares and trading restrictions have held back some investors.
The market once had very high expectations for the cross-border trading program and some even questioned whether the quota is sufficient. The reality has been far less exciting.
Southbound trading has been even quieter, using only 10 percent of the daily quota of 10.5 billion yuan. H-shares have benefited marginally from the scheme so far.
Coming back to A-share investments, people should develop a new mindset. Value investing has never gained popularity on the mainland, where speculation over government policies is a dominant feature in the market. However, after months of speculative activity, there are now fewer quality plays with good earnings and low valuations.
Some investors returned to the market last year and they are reluctant to leave in the near future. Therefore, the speculative fervor is set to go on, and the market themes might shift from financial plays to other sectors. The forthcoming NPC & CPPCC sessions in March will help set the tone for future market direction.
Free-trade zones are one of the hot topics among investors. Market rumors say three FTZs will be launched on March 1 — in Guangdong, Tianjin and Fujian. And investors will flock to related plays again if that comes true.
Take Guangdong for example. Shenzhen’s Qianhai, Zhuhai’s Hengqin and Guangzhou’s Nanshan are all included in the FTZ. That will benefit property, port, logistics and tourism players in these areas.
Investors should take a look at Gree Real Estate (600185.CN), an arm of the State-owned Assets Supervision and Administration Commission of the Zhuhai city government; big local developer Huafa Industrial Co. (600325.CN); and Guangzhou Development Group (600098.CN), an entity affiliated with the State-owned Assets Supervision and Administration Commission of Guangzhou city government. Apart from these, there is also Shenzhen-based Cofco Property Group (000031.CN).
Policy incentive will become a major force driving regional growth amid a broader slowdown in the country. The second batch of FTZs is on the horizon, even as the market focuses on any potential third batch decision during the annual NPC & CPPCC sessions. Possible candidates include Xi’an, Wuhan, Chengdu, Chongqing and Xinjiang.
Besides, authorities are expected to unveil state-owned enterprise (SOE) reform plans after the NPC & CPPCC sessions. According to some reports, Guangdong SOEs might take the lead in mixed ownership reform as part of the plan.
This article appeared in the Hong Kong Economic Journal on Feb. 24.
Translation by Julie Zhu
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