Hong Kong Exchanges & Clearing (0388)

The article gives a brief intro on where are the focuses by funds from both HK and Shanghai...

What Shanghai analysts say to buy as Hong Kong link nears
By Bloomberg / Bloomberg | November 11, 2014 : 1:32 PM MYT

HONG KONG (Nov 11): For international investors seeking advice on which stocks to buy through the Shanghai-Hong Kong exchange link, the message from Chinese analysts is clear: pile into consumer shares and avoid raw-materials companies.

More than half of 17 Shanghai stocks eligible for the program with unanimous buy ratings are in consumer industries, according to data compiled by Bloomberg.

Qingdao Haier, an appliance manufacturer, and Tasly Pharmaceutical Group, a seller of Chinese medicine, are projected to climb more than 28 percent in the next 12 months.

That compares with forecasts for declines of at least 20 percent in Aluminum Corp ( Financial Dashboard) of China and Zijin Mining Group.

Foreign investors will gain access to more than 180 consumer-related companies in Shanghai when the link starts on Nov 17, making it easier for them to add exposure to the part of China’s economy that Morgan Stanley estimates has grown to 47 percent of gross domestic product from 43 percent in 2008.

While analysts were overly optimistic about consumer shares a year ago, Eastspring Investments says the stocks are poised to rally now as China’s 1.3 billion people increase spending.

“As more and more Chinese people start to make more money, you can see where consumption stocks, especially the discretionary stocks, have that potential for a lot of growth over the next few years,” said Ken Wong, a client portfolio manager at Eastspring Investments, which oversees US$115 billion and plans to invest in Shanghai shares through the exchange link.

“We see a lot of potential upside.”

Growth forecast
While analysts see consumer stocks gaining, China’s economy is forecast to grow at the slowest pace in 24 years.

GDP will expand 7.4 percent this year, according to the average estimate of 51 economists surveyed by Bloomberg, down from 7.7 percent in 2013 and the weakest since 1990.

A gauge of mainland-traded consumer discretionary companies in China’s CSI 300 Index climbed 2.1 percent yesterday while consumer staples added 3.1 percent as the Nov 17 start date was set.

Shanghai Jahwa United, a maker of cosmetics and household products, and Shantou Dongfeng Printing, a maker of packaging for cigarettes, are also among the highest-rated Shanghai stocks, according to data compiled by Bloomberg on companies with at least five recommendations.

Credit Suisse Group, Citigroup and Sanford C Bernstein & Co are among brokerages producing more research on Chinese stocks as investors around the world get ready for unprecedented access to the US$4.2 trillion market.

‘Abundant’ analysis
“The stock connect program has garnered a lot of attention lately, with the potential suite of opportunities it opens up for cross-border investing,” said Binay Chandgothia, who helps oversees more than US$30 billion as a managing director and portfolio manager at Principal Global Investors.

“There has been an abundance of analysis from the research community on how best to use to play it.”

The program allows a net 23.5 billion yuan (US$3.8 billion) of daily cross-border purchases, a limit that regulators have said will be reviewed if the link is a success.

Eligible companies in Shanghai include dual-listed shares, along with those in the SSE 180 Index and SSE 380 Index.

The SSE 380 has a weighting of almost 20 percent in consumer-related companies, versus five percent for the Hang Seng China Enterprises index.

President Xi Jinping is counting on domestic consumption to reduce the world’s second-largest economy’s dependence on exports and infrastructure spending.

SAIC dividend
Analysts’ bullish recommendations on consumer shares 12 months ago didn’t pan out.

While their recommendations implied a 34 percent gain in the CSI 300 Consumer Staples Index of Shanghai and Shenzhen listed shares, the gauge actually gained just 2.3 percent.

Their forecast for a 24 percent increase in the consumer discretionary measure was more than twice as big as the realized gain of 9.9 percent.

Liquor and dairy makers that don’t have Hong Kong listings will benefit from demand for consumer shares through the link, Dai Ming, a fund manager at Hengsheng Asset Management said by phone from Shanghai.

SAIC Motor Corp will attract foreign investors because of its big dividend payouts, he said.

The Shanghai-based automaker, whose 6.6 percent yield is more than twice as big as that of the Shanghai Composite, jumped 5 percent yesterday.

The stock may rally another 21 percent in the next 12 months, according to the average estimate of analysts surveyed by Bloomberg.

“China’s high-end manufacturing and consumption names will benefit,” said Wu Kan, a money manager at Shanghai-based Dragon Life Insurance, which oversees about US$3.3 billion.
http://www.theedgemarkets.com/sg/article...link-nears

The latest update on both SH and HK exchanges, days before the link...

Shanghai stock discounts vanish as no easy money left
By Bloomberg / Bloomberg | November 12, 2014 : 8:29 AM MYT

SINGAPORE (Nov 12): The easy money in Shanghai's stock market has already been made.

Five days before the city’s exchange link gives foreign investors unprecedented access to mainland shares, their valuation discounts versus Hong Kong counterparts are disappearing.

The largest yuan-denominated stocks have gone from an 11 percent discount in July to a two percent premium yesterday, the priciest level in 14 months, according to Hang Seng Bank.

Just 17 of the 68 dual-listed shares tracked by Bloomberg have lower valuations in Shanghai, versus 26 three months ago.

While banks including Morgan Stanley and UBS recommended cheaper Shanghai shares after the exchange connect was announced in April, their discounts have vanished before most foreign money managers get the chance to buy.

Chinese investors who own more than 95 percent of the nation’s US$4.2 trillion stock market have rushed to get out in front of the inflows, sending volumes to a record high yesterday.

“It’s the problem with any program like this or index change that’s announced in advance,” said John-Paul Smith, the founder of Ecstrat, an investment research firm in London.

“Eligible buyers tend to get front-run by the institutions that are already in position to take advantage.”

Volume surge
Bank of China, the nation’s fourth-biggest lender, paced gains among dual-listed Shanghai stocks yesterday, surging 10 percent.

The mainland shares are now valued at a 4.6 percent premium versus those in Hong Kong, compared with a 6.7 percent discount three months ago.

The Shanghai Composite Index fell 0.2 percent as more than 330 billion yuan (US$53.9 billion) of shares changed hands, the most since Bloomberg began compiling the data in 2005.

The Hang Seng China AH Premium index rose 1.4 percent to the highest level since September 2013.

Yesterday’s trading was driven by “mainlanders positioning ahead of the connect launch next week,” Robert Buckley, the managing partner for Asia at Aviate Global, said in an e-mail from Hong Kong.

Not all foreign investors have been left out of the gains.

Robeco, which oversees about US$250 billion worldwide, said in July it was using its quota under China’s Qualified Foreign Institutional Investor program to buy yuan-denominated A shares with dual listings in the consumer and industrial sectors.

Arnout van Rijn, the firm’s chief investment officer in Hong Kong, declined to comment yesterday.

Wider access
The US$64 billion QFII program has allowed professional money managers to buy local securities since 2002, while a similar system using offshore yuan began in 2011.

The link, which permits a net 23.5 billion yuan of daily cross-border purchases, will expand access to the Shanghai exchange from a limited number of institutions to anyone with a Hong Kong brokerage account.

It’s also part of China’s plan to increase use of its currency and open up the capital account.

There are still some opportunities to find cheap shares in Shanghai.

Anhui Conch Cement is valued at an 12 percent discount on the mainland versus Hong Kong, while Ping An Insurance Group is 9.7 percent less expensive.

“Some of the money has been made, but we still see some shares trading at discounts,” Daphne Roth, the Singapore-based head of Asian equity research at ABN Amro Private Banking, which oversees about US$219 billion, said by phone.

Even those gaps are narrowing. The discounts on both Anhui Conch and Ping An were almost twice as big three months ago, according to data compiled by Bloomberg.

Industry leaders
Investors should shift their attention from dual-listed stocks to companies such as SAIC Motor Corp that are currently unavailable to most foreign investors, said Ryan Tsai, an Asia equity strategist at Standard Chartered Bank HK.

Consumer-related companies including SAIC have some of the highest analyst ratings among Shanghai stocks eligible through the link, data compiled by Bloomberg show.

The Shanghai-based automaker slipped two percent yesterday, paring this year’s gain to 26 percent.

“Our focus is less on dual listed stocks,” Tsai said. “We recommend industry leaders that are not listed in Hong Kong.”
http://www.theedgemarkets.com/sg/article...money-left

This was what I alluded to when I compared the situation of A-share / H-share now with SIA / SIA Foreign in Singapore many years ago.

Walk, don't run, into Shanghai stocks

Karen Maley
855 words
15 Nov 2014
The Australian Financial Review
AFNR
English
Copyright 2014. Fairfax Media Management Pty Limited.
Big picture

There was a surge of interest in Chinese shares this week after Beijing's decision to allow foreign investors greater access to the Shanghai sharemarket, but some analysts warn investors should take care in wading into what has so far been an inaccessible space.

Beijing's decision allows foreign investors to buy and sell about 560 of the largest companies listed on the Shanghai Stock Exchange directly – known as "A shares" – through Hong Kong brokers. It allows foreign investors a far easier way to get exposure to China's fast-growing consumer sectors such as healthcare, education and tourism. Previously only selected fund managers could invest in Chinese markets through a quota system.

But although investors have responded enthusiastically to the Shanghai-Hong Kong Stock Connect program, analysts warn buying Chinese stocks is not without its difficulties. The Chinese market is still about 60 per cent below its 2008 peak, and is notoriously volatile. There are also question marks over the reliability of the accounts of some Chinese companies.

Scott Powers, the global chief executive of State Street Global Advisers, argues China's strong and steady growth make it an attractive target for investors.

"The Chinese government has been quite masterful in managing through the economic cycles," he said in an interview with AFR Weekend.

Chinese annual growth has slowed to a 7.5 per cent clip from the frenetic pace of the past decade because "it's almost impossible to keep recording double-digit GDP growth in a country of the size and complexity of China".

At the same time, China has transitioned its economy away from an export-driven model based on lower labour costs, to one "where local consumers are doing a good job of taking wage growth and translating that into economic growth".Downturn

Beijing's move to allow foreigners easier access to the Shanghai sharemarket is likely to further boost interest in the bourse. But Powers says there are still some doubts as to the reliability of Chinese financial data.

"I think one big concern is whether the data on companies is sufficiently transparent and credible for investors to make informed decisions about whether to invest in individual companies in China. I think the jury is still out," he says.

Matt Sherwood, Perpetual's head of market investment research, adds: "Despite having one of the strongest economies over the past seven years, China has had one of the weakest sharemarkets, with the Shanghai Exchange still 60 per cent below its 2007 peak."

On a valuation basis, he says, the Chinese market is quite attractive with its P/E ratio trading at 9.8 times, which is below most other major markets and half its 10-year average.

"The key risk isn't valuation or the price – instead it's the earnings outlook in an economy which has to adjust to a major property downturn, large overcapacity in several key upstream industries, a contraction in China's working age population, an over-leveraged corporate sector and structurally slowing growth. These are no small hurdles for investors to stomach."

But he says there are some good corporate operating models and income growth stories. Investors need to look for companies with a strong balance sheet, a sustainable operating model that generates sustainable income growth, and a price attractive relative to its peers, domestically and globally. "While the burgeoning Chinese [and Asian] middle class can be a source of tremendous wealth for investors in the coming decades, the key is knowing what you are buying and what are the risks," Sherwood says.Rock bottom

GaveKal Dragonomics analyst Thomas Gatley agrees the Shanghai sharemarket offers far fewer bargains than its P/E ratio would suggest.

"Like many emerging market exchanges, Korea and Brazil for example, Shanghai is dominated by a handful of large firms – notably the big four banks, which make up 20 per cent of the market's capitalisation and contribute 40 per cent of its earnings," he wrote in a research note this week.

"The rock-bottom valuations of these institutions – which may be fully justified, depending on the true ratio of bad loans on their balance sheets – drag down the aggregate to a huge degree."

Gatley pointed out many investors are grappling not with whether to buy Chinese shares but the best way to do this. For example, what are the advantages of buying on the Shanghai exchange versus buying Chinese mainland companies listed in Hong Kong (known as H-shares).

He said investors can get access to more companies on the Shanghai bourse. For instance, financials and energy firms account for 80 per cent of H-shares by market capitalisation, but in Shanghai, they account for a little less than 60 per cent of the market. On the other hand, consumer, healthcare and IT firms make up only 6 per cent of the H-sharemarket, but account for 16 per cent of the Shanghai market.

But he warns A-shares are more expensive on a market-cap weighted basis than the equivalent H-share sector in Hong Kong.


Fairfax Media Management Pty Limited

Document AFNR000020141114eabf0001a

To mark the first day of the landmark link...

Landmark Hong Kong-Shanghai stock link opens, markets dip

SHANGHAI - A trading link that will let Hong Kong and Shanghai investors buy and sell shares on each other's bourse debuted on Monday, in a major step towards opening China's tightly controlled capital markets.

Shares in both Shanghai and Hong Kong opened around 1 percent higher but quickly erased their gains, with key mainland and Hong Kong indexes turning negative on suspected profit taking by traders who had positioned for the launch, analysts said.

"The market had already responded to the stock link," Andy Wong, senior investment analyst at Harris Fraser (International) Ltd in Hong Kong said, referring to the Hong Kong market. "Short-term investors are taking profits from the market."

Much of the cash flow from the so-called Stock Connect scheme is expected to be northbound initially, with foreign investors on the Hong Kong Exchange snapping up mainland shares under a daily quota of 13 billion yuan($2.12 billion).

The expected fund inflow had helped push the SSE180 Index <.sse180> and the SSE380 Index <.sse380i> - the two main Chinese destinations for foreign investment through the scheme - up more than 10 percent and 6.5 percent since late last month.
As of 0145 GMT (8.45 p.m. EST Sunday), the CSI300 index <.csi300> of top Chinese shares and Shanghai Composite Index <.ssec> were down slightly after gaining more than 1 percent at open.
Southbound investment, capped by a daily quota of 10.5 billion yuan, is likely to be less active, with few mainland investors yet to sign up to the scheme.

The Hang Seng Index <.hsi> was down 0.2 percent.
Over the longer term, however, it could boost the average daily value of stock trading in Hong Kong by about 38 percent by 2015, French bank BNP Paribas estimates, and may ultimately lead to the creation of the world's third largest stock exchange.

China already operates several cross-border investment schemes but these are restricted to specific firms that must apply for a license to participate.

The Stock Connect program was originally expected to launch on Oct. 27, but that unofficial deadline passed, leading to speculation that the program might be held up by technical or political hurdles.

The differing tax rules applying in Hong Kong and the mainland were also a major stumbling block, but China's Finance Ministry said on Friday that it would temporarily exempt taxes on profits made from the Connect scheme.

Hong Kong's leader CY Leung has hinted that the ongoing pro-democracy protests in the city had also played a role in the delay. REUTERS
http://www.todayonline.com/business/land...epage=true

The latest update.

Most China mainland investors/funds are playing watching game. As usual, there are more restriction for cash outflow, than inflow for China.

(not vested)

18% of A-Share quota left after morning trading on Shanghai bourse
17 Nov 2014 12:20
THE trading link between the Hong Kong and Shanghai bourses has seen strong demand for Chinese A-Shares, but less than expected demand for Hong Kong shares from mainland investors.

By the end of morning trading on the Shanghai Stock Exchange, outside investors had snapped up 10.6 billion worth of shares. Just 18 per cent of the daily 13 billion yuan (S$2.75 billion) quota for share purchases was left unfulfilled, according to data from the Hong Kong Stock Exchange at 11.40am.

"It's a very busy morning," said Kevin Foy, director of equity sales trading at brokerage Maybank Kim Eng.

But demand for Hong Kong stocks from the mainland was tepid, with just under 1.1 billion out of the 10.5 billion yuan quota bought, as at 11.40am.

Source: Business Times Breaking News

IPOs are usually not a good bet, with very few exception. It happened in SGX, and also in SEHK.

By the yardstick of share price on IPO performance, SEHK has attracted its fair share of "junks", comparing with SGX

(not vested)

DJ Hong Kong IPOs Become Losing Bets for Investors

By Prudence Ho
Hong Kong is one of the world's top venues for initial public offerings, thanks to listings by Chinese companies over the years, but most of the IPOs have been a losing bet for investors, with the bulk of them lagging behind the market in recent years.

Investors who bought into IPOs in the city--the world's top venue for listings between 2009 and 2011--did especially badly last year. Of the IPOs that raised more than US$300 million, 85% performed worse than the benchmark index in the first year after they listed, data from S&P Capital IQ show. This year, with Hong Kong in fourth place in global IPO rankings, 67% of IPOs have underperformed in the first 12 months. The Hang Seng Index, the city's benchmark, is up 2.9% this year, following a 2.9% gain in 2013.

"I would rather buy companies after they have listed in Hong Kong and wait for a better entry point," said Andy Mantel, a founder and chief executive of fund house Pacific Sun Advisors. "There are so many listed stocks [from China] so there is less of a novelty factor--why buy an aggressively priced IPO when you can buy similar listed companies that are much cheaper."

Not only did so many companies underperform, 77% of the IPOs in 2013 and 75% this year have lost money for investors.
...
Source: Dow Jones

Uncertainties are the most risky, in the eye of non-speculative funds. China ETF will be the focus of those funds, till the clearer regulation unveiled...

China stock connect scheme scorecard throws up surprises

HONG KONG - A month after China opened up its equity markets in a landmark trading link with Hong Kong, demand has been subdued and the bulk of activity has come from short-term speculative investors.

The authorities had hoped mutual and pension funds and private banks would form the bedrock of the Shanghai-Hong Kong stock connect. But early trade volumes in the program launched in mid-November were completely dominated by hedge funds and banks' proprietary trading desks, according to five traders at some of the biggest brokerages participating in the scheme.

Regulatory hurdles have kept out a large swathe of the investment community - and the steady business the financial industry and regulators had hoped they would bring - despite a sizzling stock market rally on the mainland.

Market players say it could take months for long-term investors to eventually trickle into the program, as they devise ways to cope with its peculiarities.

"We are not participating in the scheme yet because of the operational issues that have yet to be resolved and we prefer to access the mainland markets via exchange traded funds," Robert Cormie, Asia CEO of BMO Private Bank, told Reuters.

Edmund Yun, executive director of investment at the same wealth management firm, agreed, citing a number of prohibitive issues. These include beneficial ownership, tax and trading settlement.
...
http://www.todayonline.com/business/chin...-surprises

Chinese regulators are disconnected from market, by enforcing the rule?

HKEx to reverse Shanghai link’s disappointing performance

HONG KONG (Jan 7): Hong Kong Exchanges & Clearing has found a way to help reverse the disappointing performance of the link between its stock market and the one in Shanghai.

The exchange operator will offer new trading accounts to fund managers as soon as March, enabling them to overcome the main obstacle stopping them from selling Shanghai-listed shares.

Chinese regulations compel international investors to deliver securities to their broker before 7:45am in Hong Kong on the day they plan to sell the shares on the mainland.

Many asset managers have compliance rules that prevent them from transferring equities before they have sold the securities.

The Hong Kong Investment Funds Association said its members were also concerned that brokers could leak the details of their sell orders.

Advance knowledge of an investor’s plans could give a rogue trader time to front-run an order, enabling them to profit from the subsequent price movement in the shares.

“Once this is implemented, it will go a long way to address the concerns of fund managers,” Bruno Lee, HKIFA's chairman, told reporters in Hong Kong.

The exchange link, known as Stock Connect, allows Hong Kong-based investors to buy a net 13 billion yuan (US$2.1 billion) a day of shares in the largest Shanghai-listed companies.

Daily purchases have fallen far short of the quota with the exception of Stock Connect’s opening day in November.

In total, asset managers have only bought about 25 percent of the Shanghai shares available to them since the link’s launch.
...
http://www.theedgemarkets.com/sg/article...erformance

(07-01-2015, 09:30 AM)CityFarmer Wrote: Chinese regulators are disconnected from market, by enforcing the rule?

HKEx to reverse Shanghai link’s disappointing performance

SGX's China A50 futures have been booming with the launch of the HKEX-Shanghai stock connect. I wonder whether the improvement in 'efficiency' of the stock connect will persuade existing investors to shift their capital from the derivative products to actual equity itself?