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Investors cheering China's market expansion should be careful what they wish for

Investment News for Financial Advisers and Paraplanners

26 Feb 2018

Investors cheering China's market expansion should be careful what they wish for

For equity investors clamouring for more access to the Chinese market, 2018 opened with some good news. The China Securities Regulatory Commission (CSRC) has confirmed a pilot scheme under which three mainland companies will be allowed to release some of their non-tradeable H shares into circulation on the Hong Kong Stock Exchange.1

While the announcement was made with little fanfare, it could have some major implications for the Chinese equity market. If the scheme is successful it could be rolled out to other mainland firms listed in Hong Kong, many of which currently have a significant portion of their share capital locked up due to strict regulation. According to UBS research, 154 Chinese companies are sitting on non-tradeable H shares worth a collective HK$2.6 trillion ($332 billion).

Time will tell whether the CSRC will sanction the free release of all of these H shares given the regulator’s traditional reluctance to relax control of cross-border capital flows. Nevertheless, the scheme looks promising. Freeing up mainland companies’ share capital should boost liquidity and bring about a greater alignment between controlling parties and public investors, among other benefits. But any expansion of the Chinese equity market could also affect the performance of shares that are already listed.

Read the full article

1.      ‘CSRC gives nod to pilot programme for full H-share convertibility’, GlobalCapitalAsia, January 2018

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Comments (1)

That is the least of it. With these developing countries (isn't China developed?) there are many issues. For example:

1. How much do you trust the figures and statistics?
2. Which tipsters or fund managers are actually 'on the ground?"
3. How many can speak the local language?
4. How liquid are the shares? Can they be traded on properly regulated and recognised global exchanges?

It really is the old adage: "Don't go digging yourself - sell the miners shovels". In other words perhaps it is better to invest in those companies from the developed world that are subject to a recognised regulatory system, that trade into these markets or have their subsidiaries in them. (EG Unilever, Shell, Roche, Nestle etc)

Harry Katz   05/03/2018   10:12


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