bodyType

customContents

entityId

entityUuid

articlePageQuery

filter

article

articleBaseAdvertisingInfoArticle

articleListArticle

articleSeoArticle

hooksArticleAcknowledgementGateOverlayArticle

hooksTrackPageViewArticle

hooksContentInterestArticle

articleLinkingDataContent

hooksAmpRedirectArticle

articleSchemaContent

liveArticle

advertZone

sentiment

contentLock

topics

types

sections

paywallTypes

createdDate

publishedDate

urlAlias

moreOnThisArticles

sponsorType

commentCount

authorLocations

authors

corrections

displaySlideShow

multimediaEmbed

printHeadline

seriesContainer

articleSpeeches

socialHeadline

headline

images

flag

firstTopic

glossary

flattenTypeIds

image

relatedLinks

relatedNewsletters

__typename

sponsor

pdfFiles

seriesReverseOrder

series

disableOffPlatformContent

published

updatedDate

summary

subHeadline

body

keywords

readingTime

customTimezone

liveContents

Hong Kong stocks, particularly H shares and red chips, will see a sharp inflow of funds if mainland retail investors are allowed to invest in SAR-listed stocks, according to analysts.

Alex Tang Yee-yuk, director of research at Core Pacific-Yamaichi International (HK), said the proposed qualified domestic institutional investor (QDII) scheme would create an influx of mainlanders' foreign-exchange savings into Hong Kong stocks.

'QDII is good news and it will boost the buying interest of foreign investors,' Mr Tang said.

Dai Xianglong, governor of People's Bank of China, last week said Beijing was studying setting up a special financial institution to help mainland residents invest their foreign-exchange holdings in the Hong Kong stock market.

Foreign-exchange savings of mainland individuals in mainland banks have been estimated at US$80 billion. A further US$50 billion is thought to be held by mainland companies.

Mr Tang said H shares in Hong Kong would benefit the most if the measure was implemented.

'Mainlanders are likely to invest in something they are familiar with, like the H shares and red chips,' he said.

'I think H shares will be the likely beneficiary because most of these companies are also listed in China. They can refer to the stock prices [against] their listed price in China.'

There was a general feeling in the market that most of the H shares in Hong Kong were under-valued, but the fundamental support for H shares was high, with 20 per cent earnings growth last year, Mr Tang said.

The H-share index rose by less than half a percentage point last week, while the red-chip index was up by 2.06 per cent.

A number of securities houses have forecast that China can retain an annual GDP growth of more than 7 per cent this year.

On Friday, Premier Zhu Rongji said China's economy would grow 7.5 per cent year-on-year in the first quarter.

Mr Tang said Core Pacific had already shown interest in investing in China-related stocks like H shares.

'I believe the ratings of H shares might be up-graded,' he said.

The proposed QDII might serve as a catalyst that would further encourage foreign institutional investors to invest money in H shares, he said.

But Mr Tang said the effect would depend on how they viewed its implementation.

'Whether the effect of boosting the market is strong depends on how the investors in the US or Japan view QDII . . . How they view the potential of QDII and the fundamentals of the shares are important.'

Pu Yonghao, senior economist at Nomura International, said QDII would boost investor sentiment towards the big red-chip stocks.

He said companies like China Unicom, China Mobile, Legend Holdings, Shanghai Industry, Sinopec and PetroChina would be most sought after by mainland investors, as they might provide good returns.

H shares are about 76 per cent cheaper than their A-share counterparts, which are listed in the mainland.

However, Mr Pu said the immediate benefit of QDII would be limited.

He believed the central Government would allow only US$5 billion in foreign exchange to flow into the Hong Kong stock market in the initial stages.

That is only about 5 per cent of the combined capitalisation of H shares and red chips.

'The first stage will be like an experiment or a trial. I think less than US$5 billion will be allowed to be invested in the Hong Kong market,' Mr Pu said.

'They [the central Government] are cautious.

'Their main concern lies on how to control or monitor the outflow of capital.'

Mr Pu said the QDII scheme would be limited to a few investment funds, like social-security funds, pension funds, government-investment vehicles and corporates, and QDII would mark a transitional step towards the opening of full capital accounts in China.

He expected more foreign exchange would be allowed to flow out if the trial proved a success.

He also suggested that Chinese capital would eventually be allowed to invest in other markets.

'Hong Kong is not the only place to diversify investment risk. The markets in the US can also provide a reasonable return,' Mr Pu said.

QDII would definitely help the Hong Kong stock market by injecting new liquidity, he said.

However, B shares in the mainland would be negatively affected, as their source of capital was foreign exchange, not yuan.

Joseph Tang, head of research at Sun Hung Kai Research, said:  'The B-share market will be badly hurt if China is going to relax its restrictions on overseas investment. H shares are certainly more attractive than B shares. Investors may sell out B shares and apply for QDII if it is approved.'

Mr Tang said QDII would help unify and simplify the stock markets in China by diverting foreign exchange to Hong Kong.

'Stock markets are used for raising capital. There may be confusion as there are many different markets. The unification and simplification of markets is good for everybody. The function of the stock markets will then become more positive,' he said.

'The price of B shares in the mainland is high. Letting small investors put money in the Hong Kong market is good for them. It is a way out for their capital.'



Record yuan loan to Australian miner makes good sense

China’s push to promote its currency accelerates with landmark Fortescue loan

China grants Hong Kong new yuan quota as Payment Connect kicks off for 315 million users

Saudi sukuk ETF begins trading in Hong Kong’s landmark launch of sharia-compliant bonds

Bank of China (BOC)

Red chips set for cash flood from mainland