Tips on picking winning stocks in China’s Shenzhen-Hong Kong link

Fans of Chinese stocks are now eagerly awaiting the unveiling of the Shenzhen-Hong Kong Stock Connect on December 5 – a trading link that will allow foreign individual investors to directly purchase equities for the first time on the tech-heavy Shenzhen Stock Exchange, the world’s seventh largest by market cap, yet one of the most isolated so far.

A similar linkup with Shanghai was launched in 2014. But as far as investors are concerned, Shenzhen offers something different from the industrial and financial-heavy Shanghai market, a stock universe representing so-called New China.

“While China is on a slowing growth trend, its growth profile is also evolving,” said Kinger Lau, chief China strategist for Goldman Sachs. “We see consumption and services taking charge.”

Besides, although China is losing global market share in low-value-added goods, it is now a dominant global and local player in high-end electronics and industrial equipment, with rising momentum in infrastructure exports.

“Investors need to adjust their investment framework as the economy morphs into a new growth era,” Lau said.

The Shenzhen Stock Exchange, with a total market capitalisation of approximately US$3.3 trillion, is “a powerhouse of private enterprise, tech companies and strategic emerging companies”, said Stephen Sun, head of China and Hong Kong equity strategy for HSBC.