Investments in Chinese – Finance – Kommersant
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SPB Exchange has expanded the list of Hong Kong stocks available to unqualified investors. Market participants believe that demand for such securities will grow due to the growth of geopolitical risks and regulatory restrictions. However, such investments should take into account the general state of the Chinese economy, the prospects for the global economy, as well as the dynamics of exchange rates – the yuan and the Hong Kong dollar.
Listing change
Last week, SPB Exchange significantly expanded the list of traded shares of Chinese companies listed on the Hong Kong Stock Exchange (see Kommersant of October 12). In June, the exchange launched trading in shares of 12 companies, the most famous of which are Alibaba Group, Xiaomi, JD.com. In October, securities of another 46 issuers will be added to them, including Sinopec, PetroChina, Lenovo Group, Li Auto, Geely Automobile and others.
Expansion of the list of Chinese securities traded on the SPB Exchange is positive news for Russian investors, market participants believe
Moreover, some of these issuers continue to trade depositary receipts with listing on US stock exchanges. However, under Russian law, they are equated to securities from unfriendly jurisdictions. According to Marat Reichel, Finam investment consultant, partial restrictions imposed by the Central Bank on the purchase of foreign securities from unfriendly countries have significantly reduced the options available to unqualified investors. The purchase of Chinese shares listed on the Hong Kong Stock Exchange will primarily diversify the portfolio’s country risk, including avoiding infrastructure risks associated with holding US securities. Moreover, from 2023, unqualified investors will not be able to buy such securities. “The expansion of the list of securities allows diversification by sectors of the economy: the updated list of Hong Kong securities includes companies from such promising industries as communications services, the production of electric vehicles and many others,” says Mr. Reichel.
Under rated
At the same time, market participants note several names that may be interesting for purchase. First of all, they pay attention to the shares of Alibaba, the world’s largest operator of online trading platforms. “Currently, the market P/E multiple is 11.1 with a 5-year average of 22.3 (50% discount). In addition, the company continues to buy back shares: the remaining amount of the buyback is $12 billion, which is about 8% of the current capitalization,” says Konstantin Cherepanov, director of investment ideas at BCS Mir Investments.
In addition, in the current difficult situation, it seems reasonable to buy multi-functional “value” companies like CK Hutchison. Its main areas of activity are retail trade, port facilities and logistics, transport and engineering infrastructure, telecommunications and financial services. “Wide diversification of business across industries usually helps such companies stay afloat, as good dynamics in some segments compensates for failures in others,” says Oleg Syrovatkin, Leading Analyst of the Global Research Department at Otkritie Investments.. This company, according to analysts “BCS World of Investments, is trading at a P/E multiple of 4.8 with an average value of 6.8. In addition, the company pays dividends at the level of 6.4%. Dividends above 6% are paid by companies such as WH Group (a meat and food processing company) and China Life Insurance (one of the largest commercial insurance groups in mainland China).
Investments for the patient
In general, the shares of Chinese companies traded on the SPB Exchange look, according to analysts, quite cheap. Since the beginning of the year, the Hang Seng index has fallen by almost 30% to 16.6 thousand points, the lowest since 2011. According to the surveyed experts, the P/E multiple of this index is currently 9.3, one of the lowest values in the last 15 years. “Such a low estimate may indicate that most of the possible risks are already priced in,” Mr. Syrovatkin believes.
However, investors should take into account that the dynamics of Chinese stock prices is closely related to the country’s economy, which shows obvious signs of a slowdown in growth.
At the same time, Beijing is signaling that it plans to continue its zero-tolerance policy for the coronavirus, which is slowing down economic activity. “Risks of a global recession are also bearish. Therefore, despite the fundamental cheapness of shares of Chinese companies, it is not yet possible to count on a quick and stable recovery of the Chinese stock market, and investors will probably have to be patient,” Oleg Syrovatkin believes.
Currency difference
Along with market risks and the risks of the issuers themselves, investors should take into account geopolitical risks (potential escalation of the conflict over Taiwan) and currency risk (securities are traded in Hong Kong dollars). Pegging the Hong Kong dollar to the US dollar, “on the one hand, allows the investor to hedge the risks of a decline in the ruble, and on the other hand, the US dollar is probably already close to the highs of the current cycle,” Oleg Syrovatkin points out.
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