Inclusion of A shares in the Morgan Stanley Capital International benchmark and the market’s reaction to tighter regulations will bring a slow bull market for the securities in the coming three to five years, starting from this year, a fund house expert said on Tuesday.
Yang Delong, managing director and chief economist of First Seafront Fund, said he believes A shares will outperform H shares next year, gaining 20 percent as strict regulations Chinese mainland authorities imposed after the 2015 stock market crash are digested. MSCI will gradually include A shares in its benchmark. H shares are expected to surge 10 percent as funds continue to flow in from both the mainland and overseas.
MSCI announced in June this year that it plans to gradually add mainland shares – 222 China A Large Cap stocks – to its benchmark emerging markets index on a gradual basis beginning next year.
The A-share market will continue to be mainly led by earnings growth; key industries include traditional consumption, new energy vehicles and artificial intelligence, Yang said. Hong Kong stocks remain relatively cheap, he said, with a price-earnings ratio of 15 times, compared with the Dow Jones Industrial Average’s 22 times and 26 times for the Standard & Poor's 500 Index. He sees leading technology companies and traditional blue chip stocks performing well in Hong Kong next year.
Generally on the mainland and Hong Kong stock market, Yang’s favorite sectors are consumption, including white wine, food and beverage, as well as medicines, technologies – including new energy vehicles, artificial intelligence and 5G, and some cyclical industries.
According to the fund house’s data, it has managed total assets worth approximately 125 billion yuan ($18.8 billion) up to the third quarter of this year, with 20 to 30 percent of the fund invested in the Hong Kong stock market. Its manageable mutual fund amounted to 63.7 billion yuan, of which about 14 billion yuan was invested in the Hong Kong stock market. Of the company’s investors 70 percent are institutional including banks and insurance companies as well as high net worth individuals; the other 30 percent are individual investors.
Last year the return of First Seafront Fund’s Shanghai-Hong Kong-Shenzhen fund investing through the southbound stock connect link has reached a year-on-year growth of 30 to 50 percent, according to Yang. In the coming year, they plan to invest more through the southbound channel.
The Shanghai Composite Index dropped 1.25 percent to 3,280.81 on Tuesday and Hong Kong’s blue-chip Hang Seng Index decreased 0.59 percent to 28,793.88.
