Stocks News
- Strong overseas interest seen in stock quota
Date: 5-Jun-2007 Sources: (Shenzhen Daily)
A TRIPLING of the ceiling for foreign investment in China's stock market to US$30 billion is set to attract interest from long-term investors, who are keen to raise exposure to the country's raging economy despite recent market swings.
China's domestic currency A shares dropped sharply last week after the government tripled taxes on share transactions to 0.3 percent in its latest effort to cool the market following a flood of risk warnings from overseas analysts.
But some local fund managers say the market slump is only a short-term correction that could be followed by further gains.
The A-share market remains expensive, trading at close to 50 times historical earnings. But analysts and fund managers believe many blue-chips, which are trading at below-average valuations, remain worthwhile long-term investment.
'We believe the additional US$20 billion will be easily absorbed by the new applicants who are all waiting in line,'said Pieter van Putten, managing director of APS Asset Management, which runs an A-share fund in Singapore.
'These investors are mostly long-term investors. They see China as the main secular bull market story of this decade and will definitely pour in when there is a small correction in the market,'he said.
The government said two weeks ago it would triple the quota for its Qualified Foreign Institutional Investor (QFII) program to US$30 billion, still a tiny fraction of China's total market value of around 18 trillion yuan (US$2.4 trillion), about one third of which is free float.
Nearly all of the first US$10 billion quota has been farmed out to about 50 overseas institutions, largely investment banks or brokerages such as UBS, Citigroup and Daiwa Securities.
Many mutual and pension funds are still waiting for new QFII quotas.
A QFII broker at a top domestic securities house in Shanghai said he estimated at least 40 overseas buy-side companies, mainly asset management firms, are still waiting for their quotas.
Liu Yang, managing director of Atlantis Investment in Hong Kong, whose portfolios include A shares, said the US$20 billion quota would be easily swallowed up by pension and mutual funds.
'They have not overweighted China yet. But a long-term conviction to invest in China is being gradually formed among them,'she said.
The recent A-share sell-off by overseas investors has freed up part of the first-batch US$10 billion quota. Some QFII funds suffered heavy redemptions and some saw prices of their fund units slip below their net asset value.
Hong Kong-traded A50 tracker, which invests in 50 A-share blue-chips, and the Morgan Stanley China A-Share Fund, traded at about a 15 percent discount to their net asset value in late April, according to Lipper. In January, both funds traded at about a 20 percent premium, it said.
Analysts said the existing quota available for pick-up was not enough to meet demand from long-term investors.
'True, now it is relatively easy for investors to get the quota from brokerages,'said Zhou Liang, China research manager of global fund intelligence firm Lipper, a Reuters company.
'But from a long-term point of view, demand for QFII quota will still be robust,'Zhou added.
Foreign investors can play the China growth story through shares of mainland companies listed in Hong Kong or elsewhere. But analysts say the mainland stock market offers a much wider range of industries for them to invest in.
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