Mainland and Hong Kong bourses track joint path for equities growth
(Shanghai Daily)Updated: 2007-06-27 08:28 The Chinese mainland and Hong Kong stock markets are expected to develop in a mutually beneficial manner, with more quality firms conducting dual listings and securities firms expanding across the border, industry analysts said.
Market watchers also noted that the recent expansion of the Qualified Domestic Institutional Investor scheme will make Hong Kong the key beneficiary as mainland citizens channel funds outside to seek steady returns.
"The two markets can ride on China's fast economic growth and ample liquidity from the mainland and overseas," said Liu Minghui, a Kingwest Investment Consultant Co analyst. "Big Chinese companies now hope to issue both A shares and H shares to raise funds as well as their corporate profiles."
Mainland companies accounted for 73 percent of equity raised last year in Hong Kong and contributed to nearly half of the city bourse's market capitalization, according to regulatory data.
Hong Kong last year hosted nearly 50 percent of the fundraising activities by mainland enterprises, including giant banks and energy firms, which raised more than US$45 billion through stock sales abroad.
Although Chinese mainland authorities are now encouraging big state-owned enterprises to list domestically first, the frenzy for firms seeking a Hong Kong listing shows no sign of abating, industry sources said.
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"Though Hong Kong and mainland bourses seem to compete for good listings, it won't hurt either market in the long haul," said Wu Ke, a Zhongtian Investment Consulting Co analyst.
"Companies with overseas exposures know Hong Kong is a good place for them to catch the global spotlight while they also can't ignore the ample liquidity and high valuation of the mainland markets.
"So what's the result? You will likely see a lot of dual listings in coming years."
For the mainland side, with bellwether Hong Kong-traded red chips and H-share companies coming back to list, the Shanghai and Shenzhen bourses are set to feature better governance and steadier growth in stock performance, analysts said.
A raft of Hong Kong-listed companies, including Ping An Insurance Co and Bank of Communications, have sold yuan-denominated shares in Shanghai this year, and several huge listings by Hong Kong-traded firms are in the pipeline.
For the Hong Kong market, turnover is set to increase in the medium and long term after the mainland regulator early this month started to let brokerages and fund ventures help mainland citizens invest in securities abroad.
Moves to forge closer ties between the two markets, which are expected to be announced before the 10th anniversary of Hong Kong's handover on Sunday, will let mainland brokers and fund firms to gain a presence in Hong Kong.
Under the proposed arrangement, mainland securities companies will be allowed to establish wholly owned subsidiaries or joint ventures in Hong Kong to serve their domestic clients.
Qualified Hong Kong-headquartered brokerages are also likely to be permitted to set up operations on the mainland market, potentially tapping the large pool of investors keen to invest abroad.
The new policy, accompanied by the QDII project, will help siphon off the huge liquidity accumulating on the mainland market to prevent possible overheating and drive Hong Kong's stock index higher, analysts said.
The Hang Seng China Enterprises Index, which tracks the H shares of 41 mainland companies, trades at about 20 times 2007 profit. That compares with 35 times for the CSI 300 Index, which tracks yuan-denominated A shares listed on China's two exchanges, according to Bloomberg News.
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