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Analysts bullish about H shares

By Joey Kwok (China Daily)
Updated: 2009-02-20 08:01

Despite the latest sharp correction in the mainland stock market, analysts have expressed confidence on the long-term prospects of H shares of mainland enterprises listed on the Hong Kong bourse.

The analysts expect shares of Hong Kong-listed mainland companies to rebound by the end of the year and benefit from the central government's economic stimulus package.

Related readings:  Macro Economy: FDI sees 4th monthly dive in row  Economists: Chinese economy to recover in Q2  'China economy in good shape'

Peter Lai, director, DBS Vickers, said the impact of global financial meltdown on mainland companies is mild and cushioned by China's adequate foreign exchange reserves and economic stimulus package.

"The economy and stock market on the mainland will outperform overseas markets," said Lai. He expects the good performance of the A shares to help increase H-share prices too.

Lai, however, said H shares may retreat after they touch a peak, as they are relatively more sensitive to external market conditions than A shares.

"The future performance of the shares will largely depend on the global economic recovery and on whether a second financial crisis emerges in the US," Lai said.

JP Morgan's Asian Fund had earlier said it expects H shares to rebound to 25 percent this year, following the stimulus moves.

H shares will advance further if the government unveils more measures on top of the 4 trillion-yuan stimulus package announced in November last year, said Howard Wang, managing director of JP Morgan Asset Management's Pacific regional group.

Wang said the economic growth in China would decline to 5 to 6 percent this year, prompting the government to implement more measures to lift domestic consumption to counteract the weakening exports.

H shares, therefore, could catch up with the 25 percent jump in A shares and B shares so far this year, he said.

Karl Thomson Securities Chief Portfolio Strategist Patrick Shum said the positive effect of the economic stimulus measures on H shares will be relatively less significant than that on the A shares, since foreign investors also participate in the H-share market.

"H shares may not directly follow the surge in A shares. However, it may drop less than the benchmark Hang Seng Index," Shum said.

Both Lai and Shum expect the Hang Seng China Enterprises Index, which measures the H shares of mainland companies, to peak at 8500 points this year. However, Shum said the shares may tumble and test the 6000 levels.

"The effectiveness of economic stimulus measures by governments across the world and the recovery of the US economy will be the key," Shum added.

BNP Paribas Investment Partners has urged investors to pick up H shares as the bank expects the stimulus package to boost corporate earnings.

BNP has an "overweight" rating on H shares and said it favors real estate and financial industries.

Linus Yip, strategist, First Shanghai Securities, said the positive impact of the stimulus package has already been felt on the shares and the future performance hinges on the economic growth in the mainland.

Yip said shares in infrastructure, electricity and commodities would benefit more from the government policies.

"However, as the entire economy on the mainland is encountering a slowdown, these sectors too can hardly avoid the impact," Yip said.