The long-awaited Shenzhen-Hong Kong Stock Connect will be launched on Dec. 5.
But for investors looking to invest in Shenzhen shares, they should perhaps begin by asking: What sort of companies would gain from the yuan’s depreciation?
A weaker yuan has improved the competitiveness of Chinese exports, hence exporters should benefit.
The proportion of overseas revenue in sectors like electronics, home appliances, national defense, computer, textile and garment sectors hit a record high in the first half of 2016.
Investors, therefore, should take note of these industries.
However, they should be cautious about companies that have high foreign currency debt.
Property counters are also expected to draw much attention. The sector’s strong profitability, low valuation and high dividends stand out. Insurance players have piled into the sector recently.
Chinese herbal medicine is another favorable sector. Related stocks have a combined market cap of 424.8 billion yuan (US$61.54 billion), which is pretty large.
Mainland funds have placed heavy bets on 16 of 22 relevant stocks by the end of the third quarter. The market value of their holdings amounted to 7.1 billion yuan.
Mainland financial institutions are said to have stepped up research on the herbal medicine sector in the fourth quarter, which indicates the positive trend is likely to continue.
This article appeared in the Hong Kong Economic Journal on Nov. 28.
Translation by Julie Zhu
[Chinese version 中文版]
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