HK investors turn to mainland stock market

Asked why he had to close HSBC China Momentum Fund to further subscriptions much earlier than expected, Richard Wong would immediately cite "mainland factors".

"The popularity of our fund is testimony to investors' positive views on Chinese mainland's economic growth and market outlook, aswell as their confidence in HSBC Asset Management," said Wong, director and country head of HSBC Asset management's China investment team.

Due to overwhelming response from investors, the subscription period of the fund ended on Wednesday which was supposed to run till April 7.

First launched in October 2003, HSBC China Momentum Fund was the first to offer retail investors in Hong Kong access to mainland's A-share market.

The fund was re-offered on March 9 to cater for continued investor interest. Within two weeks of its re-launch, subscriptions for the fund have reached 153 million US dollars, 53 percent above its subscription target.

"A key feature of the fund is that investors are provided access to Chinese mainland's large A-share market. The 463 billion US dollars A-share universe of 1,300 shares, covering more than 50 industries, offer investors an opportunity to take advantage of mainland's dynamic economy and potential growth," he said.

"The opportunities are endless," Wong said. "Driven by robust domestic consumption and investments, mainland's economic growth is expected to stay at around 8 percent in 2005. Foreign direct investment inflows, which rose 13 percent to 61 billion US dollarsin 2004, should remain strong," he said.

"The 2008 Olympic Games and mainland's entry into the World Trade Organization will further support mainland's economic growth.We believe mainland will remain the destination of choice for investors," he added.

Besides these macro-factors of mainland economy, the convergence of A-share and H-share prices is the micro-factor behind the popularity of the fund.

According to a research by Joseph Lee and Joanna Poon from the research department of Hong Kong Securities and Futures Commission(SFC) A shares have been trading at premiums over H shares due to limited supply of A shares and investment restrictions to overseasinvestor, but the premiums was narrowed from the weighted average of some 830 percent at the end of 2000 to 39 percent at the end of2004.

Statistics show that between the end of 2000 and the end of 2004, the Shanghai A and Shenzhen A indices fell 39 percent and 52percent, respectively. In contrast, the H-share index gained 192 percent.

Meanwhile, the Price/Earning ratio for the Shanghai A and Shenzhen A market receded from 59 times and 56 times at the end of2000 to 24 times and 26 times at the end of 2004. In contrast, thePrice/Earning ratio for H shares advanced from 9 times to 16 timesover the period, whilst that for the Hang Seng Index components increased from 13 times to 20 times.

The lowering Price/Earning ratio, and great potential of the macro-economy and companies' profit, make the mainland market an inevitable choice for Hong Kong investors who want to gain higher return, said Wong.

Wong told Xinhua that HSBC China Momentum Fund will invest in mainland's A and B shares, as well as H shares.

Though he did not give out the target proportion of the three categories, he said that the proportion of its A share in the fund's portfolio will be greatly increased as there are huge opportunities in the market.

Currently, the proportion of A-share just accounts for 14.6 percent in the whole portfolio of the Fund.

Source: Xinhua