Mainland stocks set to see injection of capital

PUBLISHED : Thursday, 05 April, 2012, 12:00am
UPDATED : Thursday, 05 April, 2012, 12:00am


The mainland's sagging stock markets could soon get a shot in the arm when an additional HK$450 billion in overseas capital begins flowing into them. The extra money comes from a big rise in quotas for foreign investors announced this week by the China Securities Regulatory Commission (CSRC).

It will expand the US dollar-denominated Qualified Foreign Institutional Investor (QFII) scheme by US$50 billion, to bring the total up to US$80 billion, although details, including the timing, have yet to be released.

The Renminbi Qualified Foreign Institutional Investor (RQFII) scheme will be boosted by 50 billion yuan (HK$61.4 billion) to a total of 70 billion yuan.

The moves are being seen as the latest in a series of initiatives by CSRC chairman Guo Shuqing to rejuvenate the A-share market. It has been one of the world's worst-performing markets in recent years despite China's rapid economic growth. Moves to tighten liquidity to choke off a red-hot property sector have also taken a toll on stocks.

Last year, the Shanghai Stock Exchange lost 22 per cent and the Hang Seng Index lost 20 per cent, lagging behind major Western markets. In New York, the bellwether Dow Jones Industrial Average finished up 5 per cent, and Britain's FTSE 100 index lost just 5.5 per cent, despite the euro-zone sovereign-debt crisis and weak economic growth.

Brokers expected a significant rebound in the A-share market when it reopens today after a three-day public holiday. The Shanghai index has gained 3 per cent this year, while the Hang Seng is up 13 per cent.

'The latest foreign investment arrangements will boost the demand for mainland stocks significantly,' said Kenny Tang, general manager of AMTD Financial Planning.

'It is in line with the mainland's stock market reforms. First, they tried to reduce the excess supply of stocks by introducing the delisting mechanism and reforming IPO [initial public offering] rules, then they work on the demand side for the stocks by bringing in more foreign capital.'

He expects the banking and finance and consumer sectors to be among the first to benefit from the capital inflows.

Liao Qun, chief economist at Citic Bank International, said the new arrangement would open up opportunities for direct investment in new industries that were supported by the mainland government, like technology, energy, natural resources and the consumer sectors.

Banny Lam, associate research director at China Construction Bank International, said the consumer sector should attract foreign investor interest because only a few consumer firms were listed in Hong Kong, despite the strong growth in demand from mainland consumers.

Banking and finance, and resources, firms with A-share listings would also attract attention because the premium to the firms' H shares at which they trade is lower than the premium for other sectors.


The closing level of the Hang Seng A-H premium index on Tuesday, down 1.96 per cent•In October 2011, it closed at 141.44