Overseas buyers told they can’t purchase more of hot Chinese stock – and MSCI gives it the boot
- Overseas buying of surging Han’s Laser Technology hits 28 per cent limit on foreign ownership
- MSCI responds by saying the hot company will no longer be in its basket of A-shares in its global indexes
The recent blizzard of overseas buying of Chinese stocks has brought about an outcome with Chinese characteristics – one of the hottest stocks hit a limit on foreign ownership and can’t be bought by foreigners for now.
Han’s Laser Technology Industry Group is the hot stock suddenly in the spotlight.
Last year, index compiler MSCI added it to the basket of Chinese A-shares that are part of its global gauges. But with the sudden surge in demand for A-shares, Han’s Laser suddenly hit the 28 per cent limit China has on combined foreign holdings in a single Chinese-listed company.
Hans Laser shares stopped being available for purchase through the Hong Kong-Shenzhen Stock Connect as of Tuesday. On Thursday, MSCI said it will boot it from its benchmarks starting next Monday.
The Han’s Laser case underscores the challenges that remain for China’s stock markets, despite efforts in recent years to make it more similar to mature stock markets like in the US.
Demand is huge suddenly for Chinese stocks – and it will only grow.
Global fund managers are loading up on Chinese stocks after global index compilers MSCI and FTSE Russell announced plans to include yuan-denominated shares in their equity gauges.
Midea Group, China’s biggest maker of electric home appliances, is now also close to the limit on foreign ownership, according to data provided by the Shenzhen exchange.
This is the first time a company’s shares have been off limits to foreign buyers since 2015, when that happened to shares of Shanghai International Airport.
“Companies with better corporate governance are more likely to be owned by foreign investors,” Eric Moffett, a portfolio manager at T. Rowe Price. “Many companies with good corporate governance practices in the market tend to have a strong foreign institutional investor base, who in general focus more on risk-adjusted returns over the long-term rather than absolute return potential in the short-term.”
Overseas investors by Wednesday held a combined a 28.58 per cent stake in Han’s Laser, a maker of laser equipment used for cutting and welding in industrial and electronics products, data from the Shenzhen exchange shows. Overseas buying of the stock can resume when the foreign ownership falls to 26 per cent, according to the exchange rules.
Foreign interest in Midea was 27.35 per cent, according to the exchange data.
Han’s Laser dropped 3.9 per cent to 42.44 yuan at the close on Thursday, paring its gain to 40 per cent this year, while Midea slid 3.1 per cent to 47.56 yuan, trimming this year’s gain to 29 per cent.
Among the 28 analysts tracked by Bloomberg to cover Han’s Laser, 23 rated the stock buy and five rated it hold, with no sell recommendation.
China International Capital had a share-price estimate of 47.30 yuan for Han’s Laser and JPMorgan Chase’s price target was 46 yuan.
Foreign fund inflows have been playing a major role in China’s entry into bull market territory this time. Overseas buying of Chinese stocks totalled 66.5 billion yuan (US$9.95 billion) last month, the most for a single month since the stock connect programmes started in 2014.
