24 October 2016
After a short correction, the A-share market should continue to climb. Photo: Reuters
After a short correction, the A-share market should continue to climb. Photo: Reuters

Outlook positive for A-share market

While the A-share market rose despite declines in global markets Monday, it fell slightly Tuesday amid the global rebound.

The Shanghai Composite Index edged down 2 points to 3604. But transaction volume rose to 1.27 trillion yuan (US$200 billion).

Tuesday was the first anniversary of Shanghai-Hong Kong Stock Connect.

The most favored A-share stocks have been Kweichow Moutai Co. Ltd. (600519.CN), Ping An Insurance (Group) Co. of China Ltd. (601318.CN), China Minsheng Banking Corp. Ltd. (600016.CN), New China Life Insurance Co. Ltd. (601336.CN) and Inner Mongolia Yili Industrial Group Co. Ltd. (600887.CN).

Except for New China Life Insurance, all those stocks gained amid a falling market.

Trading value via Stock Connect, both southbound and northbound, was not high, amounting to less than half of the quota allotted.

One major reason is that investors on each side are not familiar with the stocks listed on the other side.

It may be necessary for A-share companies to promote themselves more in Hong Kong, and vice versa.

Anyway, it’s a good time to review the scheme.

Fang Xinghai, deputy chairman of the China Securities Regulatory Commission, disclosed on Tuesday that the optimization plan includes increasing the daily quota for transactions, allowing investors to buy the stock of more companies via the scheme and strengthening regulatory cooperation across the border.

The launching of a similar scheme with the Shenzhen stock market and the mutual recognition of fund products are also on the way.

Bigger quotas may not help a lot, but adding more companies to the list is attractive.

The hot stocks, based on concepts like internet finance, robotics or other technology, are mostly listed in Shenzhen.

In fact, I think the regulator could just cancel the whitelist and let all listed companies become tradable via the connect schemes.

Market observers used to expect, with foreign investors entering the A-share market, that the market would become more rational and oriented toward value investing because foreign investors usually prefer big-cap stocks.

But it will never happen. The A-share market is still the A-share market.

It is rumored the CSRC will carry out reforms soon.

It is said the central government will integrate the regulatory systems for banks, insurance and the securities industry.

If this is true, how the integration will affect the launch of Shenzhen-Hong Kong Stock Connect is a point worth considering.

Facing volatility in external markets, the mainland stock market remains calm.

I believe that after a short correction, it will continue to climb.

The outlook is positive.

This article appeared in the Hong Kong Economic Journal on Nov. 18.

Translation by Myssie You

[Chinese version中文版]

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a columnist at the Hong Kong Economic Journal

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