Be a part of China’s new growth story
Summary
Publicly-traded Chinese companies include mainland-listed A-shares, Hong Kong-listed companies, and US-listed American Depositary Receipts (ADRs). Each market’s listings have their own distinct attributes. Instead of focusing on a single market, it is preferable to adopt an all-in strategy that captures all the investment opportunities in China.
Distinct characteristics of each market’s Chinese listings
In the past, foreign investors invested primarily in China through Hong Kong-listed stocks. With more Chinese companies being publicly listed in the US, investors have gained wider access to Chinese equities. In addition, with China’s local A-shares market opening up, investors can now directly trade Shanghai and Shenzhen-listed companies through Stock Connect programmes, further expanding investment opportunities in China.
Hong Kong-listed Chinese companies are mainly old-economy stocks, such as financials, telecommunications, and public utilities, except several technology giants. Meanwhile, US-listed Chinese companies are focused on consumer discretionary and telecommunications. In comparison, the mainland A-shares market comprises of more diverse new economy stocks, particularly in travel, entertainment, 5G equipment, health care, industrial automation, new energy automobile, and biotechnology sectors, which expands investors’ horizons and investment options.
Mr Anthony Wong, Allianz Global Investors’ co-lead manager for Allianz All China Equity fund said, “Chinese corporations listed in these three markets have their distinct attributes and target a unique group of investors. This explains how an integrated strategy can make up for each market’s shortcomings as the portfolio tells a fascinating, diversified China growth story.”
New opportunities with the return to Hong Kong Exchange
As US-China tensions escalate, it is noteworthy that several US-listed Chinese companies intend to move their listings to Hong Kong’s stock exchange. Mr Wong indicated that foreign listed Chinese companies’ homecoming plans to Hong Kong or the mainland A-shares markets may eliminate market uncertainties. “Among these foreign listed Chinese companies, many are high-quality businesses that can benefit from China’s long-term structural change. As they return to mainland China or Hong Kong’s stock exchanges, they may attract more attention from local investors in the mainland and Hong Kong, which will likely expand their investor base and bring in more opportunities.”
Our three investing rules: Growth, valuation and quality
When selecting Chinese stocks from the three markets, Mr Wong strictly follows three principles: growth, valuation, and quality. For growth, he targets stocks with long-term profitable growth that is better than the market or peers. Secondly, he avoids being swayed by market sentiment and selects shares that are reasonably valued. Thirdly, he emphasizes the company’s quality, such as financials and corporate governance.
Mr Wong added that if he is not confident enough in a company’s management or corporate governance, even if the company’s data demonstrated speedy growth, he would not consider investing in the business to avoid potential landmines. “We intended our asset allocation to cover all industries, with a focus on discovering stocks from every sector that we believe could outperform the market. However, in our experience, high-quality growth stocks are usually concentrated in several particular sectors.”
In the second half of the year, Mr Wong aims to search for stocks that will benefit from China’s economic recovery. That includes domestic consumption-driven stocks, such as home appliances, automobile, travel and entertainment, as well as sectors that benefit from economic stimulus measures, such as the construction equipment supply chain.
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