The new agreement will provide a host of opportunities for lower-tier lenders looking to tap the mainland market
The early indicators are that the medium-term beneficiaries of the free-trade agreement signed over the weekend will be small-cap companies lurking beneath the radar of some bigger funds.
At this stage there is still some ambiguity as to what the real implications of the closer economic partnership arrangement (Cepa) are going to be, but the reduction in the asset threshold from US$20 billion to $6 billion for banks entering the mainland has kicked open a wide range of possibilities for smaller Hong Kong lenders.
'Cepa will benefit the smaller banks, giving them a gateway into China,' said Louis Wong Wai-kit, a research director at Phillip Securities.
Investors have been anticipating this for a while and since late April. Wing Hang Bank, Wing Lung Bank and Dah Sing Financial Holdings have surged more than 20 per cent before consolidating.
Mr Wong questioned whether all three had become overvalued, saying the pick of the small-cap sector was Citic International Financial Holdings, which had also surged since late April but was less exposed to the uncertainties of the property market and was trading on a reasonable 7.5 times forecast earnings. The counter closed at $2.175 on Monday.