Date
19 October 2017
Mainland retail investors need to have at least 500,000 yuan in their securities account in order to participate in the Shenzhen-Hong Kong Stock Connect scheme. Photo: Bloomberg
Mainland retail investors need to have at least 500,000 yuan in their securities account in order to participate in the Shenzhen-Hong Kong Stock Connect scheme. Photo: Bloomberg

Shenzhen-HK Stock Connect: Picking likely winners

With Shenzhen-Hong Kong Stock Connect becoming a key trading theme in the market, it would be interesting to explore what kinds of Chinese companies investors would be interested in buying.

To find out the answer, stocks favored by foreign investors now investing under the Qualified Foreign Institutional Investor (QFII) scheme will be a good reference point.

QFIIs have been buying actively during the second quarter. Some of the notable players are Norges Bank, Abu Dhabi Investment Authority, Kuwait Investment Authority, UBS AG and Bill & Melinda Gates Foundation.

As of Aug. 19, 36 QFIIs appeared on the list of top shareholders of more than 40 mainland-listed companies.

Blue chips, especially banking plays, have so far been the favorite of these investors.

However, they’ve also demonstrated a growing tendency for increasing their investments in small and mid-cap shares.

In general, QFIIs prefer industry leaders with sound earnings, high dividends, large market capitalization and reasonable valuation.

Kweichow Moutai Co. Ltd. (600519.CN), for example, appears as one of the 10 most active stocks in the Shanghai-Hong Kong Stock Connect almost every day.

The share price soared to a record high of 326.8 yuan (US$49.12) on July 7, bucking the sluggish market trend.

Among the company’s top shareholders are four foreign investors under the QFII scheme.

Apart from buying quality blue chips for long-term investment, these institutional investors are also branching into smaller companies that show bright growth prospects.

Since eligible stocks under the Shenzhen-Hong Kong link have yet to be confirmed, that could also be the focus of market speculation in the coming months before the official launch.

This article appeared in the Hong Kong Economic Journal on Aug. 20

Translation by Julie Zhu

[Chinese version 中文版]

– Contact us at [email protected]

CG

Senior investment banker

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