Investors are increasingly optimistic about China’s long-term growth prospects but remain “underinvested” in the world’s second-largest economy, according to Bonnie Chan Yiting, CEO of Hong Kong Exchanges and Clearing (HKEX). Despite this underinvestment, Hong Kong’s capital market has shown resilience, evidenced by the volume of new listings, Chan noted at the UBS Asian Investment Conference.
“The China growth story is still very captivating,” Chan remarked. “The world is underinvested in China. If you think about foreign ownership of A shares in terms of market cap, it’s 5 per cent. It just does not make sense.” The conference, which featured prominent speakers like former US secretary of state John Kerry and Thailand’s prime minister Srettha Thavisin, drew around 3,000 participants.
Chan emphasised the significant potential for foreign investments in China’s markets. She found the recent bullish trend in Hong Kong stocks “very encouraging,” as it indicates foreign investors are re-entering the market. Amy Lo Choi-wan, UBS’s chairman of global wealth management in Asia and CEO of UBS Hong Kong, echoed these sentiments, highlighting that China remains the primary focus for foreign investment banks despite the current economic slowdown.
“China is too big to ignore,” said Lo, pointing to China’s US$18 trillion gross domestic product, nearly half the GDP of the entire Asia. She also underscored China’s importance in wealth creation, presenting significant opportunities for wealth managers. The latest UBS global family office report showed that the ultra-rich are seeking a better balance in their portfolios, favouring equities and fixed income as their top asset classes.
“We have seen a pickup in inquiry about [allocations] to China and Hong Kong, and an increased interest in proposals for these markets,” said Lo, attributing these shifts to the attractive stock market valuations in mainland China and Hong Kong. Hong Kong’s benchmark Hang Seng Index trades at about 9.9 times forward earnings on average, while the price-to-earnings ratio for the CSI 300 Index, tracking the biggest companies listed in Shanghai and Shenzhen, stands at 14.3 times. In comparison, the S&P 500 members trade at an average of 23.3 times.
Meanwhile, Hong Kong stocks have risen more than 25 per cent from the year’s low in January, marking a technical bull run. Investors have been encouraged by policy support from China and portfolio rebalancing by fund managers seeking better value and avoiding overpriced markets elsewhere. Chan suggested that the bullish sentiment could boost new listings, with stronger capital markets eventually leading to more significant fundraising in the city. Currently, there are over 100 applications for initial public offerings (IPOs) in the pipeline.
Nearly 20 companies have listed in Hong Kong this year, though blockbuster IPOs – upwards of US$1 billion – have been absent. Despite the smaller deal sizes, the volume of IPOs has remained resilient. Chinese tea shop operator Sichuan Baicha Baidao’s US$330 million IPO in April has been the largest of the year. The IPO drought was partly due to companies turning to domestic markets during the Covid-19 pandemic, but they are now looking at Hong Kong’s market depth and breadth again.
“This raises hopes and I’m very confident that Hong Kong can be that alternative for listings,” Chan said. “However, we do need to see a couple of big deals to [kick-start] our market.”
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