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. However, new freedoms come with new strings attached; banks will need to prove themselves for two years with foreign capital before they can enter the lucrative yuan market. And, as smaller banks generally struggle to open more than one branch a year, expansion is likely to be a slow process. 'It takes a lot of time and investment to set up a branch network in China,' Mr Wong said. Furthermore, even if Hong Kong banks were to establish comprehensive branch networks in China and develop a successful marketing strategy, analysts said questions remained over whether they could make any money there. Mr Wong said that Bank of East Asia had had access to China for some time but had yet to reap significant dividends from it. There has been speculation that following Cepa, foreign banks will buy into Hong Kong banks to gain mainland access, but Mr Wong was sceptical about this idea and said it was far more likely they would buy directly into Chinese banks to gain access to the mainland market rather than the indirect route through Hong Kong banks. The loosening of cross-border business has a far more immediate impact on port operators such as Cosco Pacific and China Merchants Holdings International, as unlike the banks, they can - without further outlay - reap the rewards of an increase in regional traffic. Cosco joined the Hang Seng Index last month causing its share price to surge, but many market watchers have said that the port operator maintains significant upside potential, trading at 13.04 times forecast earnings on Monday's closing price of $8.20. Infrastructure conglomerate Hopewell Holdings could also gain from the increase in economic activity in the region. Hopewell's share price jumped 4.4 per cent on Monday to close at $8.30, leaving the counter trading at 11.4 times forecast earnings. Shipping company Orient Overseas International Ltd, whose share price leapt 6.06 per cent on Monday, is another company that could gain. The rules on the trade of gold in the mainland are also set to be loosened. The share prices of Luk Fook Holdings International and Hang Fung Gold Technology have soared since late April - when speculation concerning the free-trade deal began - but both jewellery companies are still trading on low valuations of four to five times forecast earnings. On Monday, Hang Fung closed at 77 cents while Luk Fook ended at 75 cents. The territory's struggling film industry could also be given a boost as Hong Kong films will be allowed quota-free access to the mainland - previously they were limited to 20 films a year. However, analysts remain cautious on how much film companies such as China Star Entertainment or Golden Harvest Entertainment (Holdings) will gain from the new arrangements, particularly given that they are both already seriously in the red. Amid the ambiguity surrounding the new agreement, one stock that looks likely to benefit is Hong Kong Exchanges and Clearing as it will be able to open a Beijing office. The stock gained 1.36 per cent on Monday to close at $11.20. Celestial Asia Securities research head Herbert Lau Chung-kwan said Cepa would, at the very least, give Hong Kong stocks a 'psychological lift'.