UBS plans more A-share purchases

PUBLISHED : Wednesday, 03 December, 2003, 12:00am
UPDATED : Wednesday, 03 December, 2003, 12:00am

With two-thirds of its US$300m QFII quota invested, the bank has secured its second quota

Swiss bank UBS, already the largest of the mainland's 10 qualified foreign institutional investors, is preparing for a bigger plunge into China's US$460 billion A-share market.

The bank has invested two-thirds of its first US$300 million QFII quota, buying 35 stocks, 11 convertible bonds and 10 equity funds in sectors ranging from power and steel to financial institutions and cars.

It secured a second US$300 million investment quota two weeks ago.

'If we see this additional US$300 million investment quota being filled up, which we are very confident it soon will be, we'll apply for more,' Nicole Yuen, head of UBS China equities, said yesterday.

The bulk of the orders has been made on behalf of the company's 30 institutional clients.

The other banks to have been granted access to China's stock market under the QFII scheme are Citigroup, Credit Suisse First Boston, Deutsche Bank, Goldman Sachs, HSBC, ING, JP Morgan Chase, Morgan Stanley, and Nomura.

Of the US$1.6 billion in investment quotas approved for the 10 QFIIs, less than US$1 billion has made its way into China's stock market - home to about 1,200 A-share companies, UBS said.

But UBS believes the scheme will accelerate, because of growing investor interest in its liberalisation.

'The China Securities Regulatory Commission is very receptive,' Ms Yuen said, adding that UBS was in constant dialogue over the possibility of removing some QFII restrictions.

UBS is lobbying the commission to lift the one-broker, one-market QFII restriction so it can invest in the Shanghai and Shenzhen stock markets through more than one broker, enabling better execution of orders and risk diversification.

It is also hoping that QFII will be exempted from capital gains tax and withholding tax on dividends paid by Chinese companies. Both are levied at a flat rate of 20 per cent.

UBS said investors were being lured to the A-share markets by the narrowing of the valuation gap between a company's A shares traded on Chinese stocks markets and its H shares traded in Hong Kong.

While A shares, with a historic average price-earnings ratio of about 33 times, are still trading at more than twice as much H shares' average 12 times price-earnings ratio, UBS said in that certain sectors, such as cars and infrastructure, the distinction was no longer as obvious as a few years ago.

Vincent Chan, UBS chief China strategist, said: 'The gaps will still be there, but for certain stocks the gaps will be so narrow that you would not see a real choice between H shares and A shares.'