Chinese stocks listed on the Hong Kong market have rallied strongly in anticipation that Chinese i...
Chinese stocks listed on the Hong Kong market have rallied strongly in anticipation that Chinese investors will soon be allowed to buy overseas stocks.
Rumours have been mounting that the introduction of the qualified domestic institutional investor scheme (QDII), which will allow certain Chinese investors to invest overseas, is weeks away rather than months.
Flavia Cheong, manager of the Aberdeen International China Opportunities fund, said the move follows on from last year's qualified foreign institutional investor scheme (QFII), which theoretically opened Chinese A shares up to foreign investors.
In reality, however, foreign investors still faced a number of bureaucratic hurdles when trying to invest in stocks listed in China. These included a $10bn threshold for assets under management and a three year lock-in period, hence Cheong continues to favour gaining exposure through Hong Kong-listed companies.
'Will QDII encounter the same problems as QFII? We do not think so, because from a valuation perspective, mainland money has for some time been finding its way into H-shares and red chips (Hong Kong-listed stocks controlled by mainland firms). QDII merely legitimises these outflows,' Cheong said.
While inflows will take time to gather momentum, she expects $2bn-$5bn will be invested in Hong Kong-listed mainland companies in the short term following the introduction of QDII.
'Implementation of QDII further supports our China strategy. We have always been wary of investing directly in stocks listed on domestic stock exchanges and feel the best opportunities lie in foreign-owned enterprises and the handful of China stocks listed overseas, principally in Hong Kong as H-shares,' Cheong noted. 'By contrast, B-shares, which are listed on the mainland and we have access to, are overpriced and face an erosion of market share.'
Besides this potential structural impetus to H-shares, Cheong is confident Aberdeen's reliance on proprietary research will aid the fund to outperform its peers. She said many institutional investors in Asia rely on broker research, which can be of low quality.
The fund is a Dublin-listed Oeic, managed as a concentrated portfolio of 25-30 stocks with a low turnover. While stressing the bottom-up nature of the fund's stock selection process, Cheong said the theme of government spending is one being played at the margins.
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