HONG KONG - Two Hong Kong tycoons, both of
whom the press have described as the "Chinese
Warren Buffett", have expressed opposite views on
the future of the Hong Kong stock market amid
growing concerns over the subprime-mortgage market
in the United States.
The differing views
of Greater China's wealthiest and
second-wealthiest men - both keenly followed by
Hong Kong retail investors - however, agree on one
thing: the Hong Kong stock
market is more affected in
the near term by the Chinese mainland's economy
than by the global markets.
After the
benchmark Hang Seng Index gained 2,500 to close at
22,921.89 last Friday, Lee Shau-kee, whom Forbes
Asia magazine has ranked as the Greater China's
second-wealthiest person, with an estimated net
worth of US$17 billion, was bullish and urged
investors to continue buying stocks. He cited the
mainland's booming economy and the huge price
discrepancy of the same Chinese companies between
the H-shares listed in Hong Kong and A-shares list
in Shanghai.
Lee, chairman of Hong Kong's
third-largest property developer Henderson Land
Development, cited the returns of Shau Kee
Financial Enterprises, a personal trust he founded
in 2004 to invest in stocks with a portfolio of
HK$50 billion (US$6.4 billion). Its value is now
HK$150 billion, and Lee is targeting HK$200
billion by the end of 2008, he said. Half of the
portfolio is in Hong Kong stocks.
However,
Li Ka-shing, reportedly the richest man in Greater
China with a total fortune of US$22 billion and
the chairman of Hong Kong property developer
Cheung Kong Holdings, was comparatively cautious,
saying last Thursday that though both the mainland
and Hong Kong stock markets were hovering at "very
high levels", he urged investors to exercise
caution whether they seeking short-term profits or
looking for long-term investments.
"My
advice is always to be careful. Don't borrow money
to buy stocks,'' Li said.
Li, however, was
upbeat about the global economy despite concerns
about possible impact of the faltering US
subprime-mortgage market. He said that though it
may harm global stock markets, he believes the
economic underpinnings are still very strong.
The better-than-expected performance last
week of the Hong Kong stock market was mainly
boosted by Beijing's announcement on August 20 of
a pilot plan to allow mainland individuals to
invest directly in Hong Kong shares.
The
news continues to boost the Hong Kong market this
week, with the Hang Seng Index rising more than
600 points on Monday. The market rose slightly in
mid-morning trading on Tuesday.
As Lee and
some analysts said, the new policy will not only
channel capital to Hong Kong from mainland China,
which is troubled by the problem of excess
liquidity, but it also gives an immediate boost to
H-shares of the dual-listed Chinese enterprises,
especially given the significant discounts of
their A-share counterparts.
H-shares,
along with red chips, include the mainland Chinese
enterprises listed in Hong Kong and other overseas
markets. Many heavyweight H-share companies
incorporated and based in the mainland also sell
A-shares on the mainland stock market.
As
a result, when the price of a company's H-share
dips below its A-shares, investors tend to buy
H-shares and vice versa.
After enjoying a
bull-run in the mainland's A-share market, more
mainland investors have been rushing to open stock
accounts in Hong Kong to take advantage of the
lower valuations of H-shares.
Some
brokerages in Hong Kong said accounts opened by
mainland investors surged by as much as 70% this
year, partly because of concerns about the bubble
in the mainland's A-share market.
Lee
advised keeping an eye on H-shares and their
A-share counterparts. For example, Datang Power
(0991) traded in Hong Kong at HK$9.17, but at
23.61 yuan in Shanghai on Monday (1 yuan is worth
about HK$1.03).
Lee forecast that the
China Enterprises Index will surpass 15,000 by
year end. It stood at 13,989.87 on Monday, up
811.78 from last Friday.
Asked whether
frenzied individual mainland investors would add
volatility to the Hong Kong market in light of
Beijing's new plan, he said it would be all right,
since Beijing will "take good care of Hong Kong".
Jun Ma, chief economist of Greater China
at Deutsche Bank Hong Kong, said his bank's best
guess is that total fund flows from China to Hong
Kong equities via the previously announced
Qualified Domestic Institutional Investor (QDII)
program and the new channel (via Bank of China
Tianjin) between July 2007 and June 2008 may reach
US$40 billion, compared with a previous prediction
of US$20 billion through QDII alone.
Thomas Deng, a Goldman Sachs economist,
estimated that Beijing's new policy will bring
US$150 billion to the Hong Kong market in the next
three years, or about 7% of the current market
capitalization. "The potential flow represents
about 30% of the current free flow market cap of
the Chinese companies listed in Hong Kong, and
therefore will be significant to the H-share
market," Deng said.
Jerry Lou, China
strategist at Morgan Stanley said Hong Kong-listed
China stocks will be the obvious winners as
Chinese individual investors know them the best
and the stocks are naturally hedged against yuan
appreciation given their yuan assets.
"Hong Kong's dual-listed China stock
universe now trades at a 40% discount to A-shares
(market weighted average) ... The sectors that are
trading at deep discounts to the A-share market
are pharmaceutical, consumer and retailing, and
real estate. Blue chips in large sectors that are
not accessible in the A-share market, such as
China Mobile, CNOOC [China National Offshore Oil
Corp] and PetroChina, should also benefit," Lou
wrote in his latest research note.
Hu
Weitao, chief investment officer of Valuefinder
Investment Management in Shenzhen, said Beijing's
newest investment plan has encouraged his
company's plan to launch a fund that primarily
invests in Hong Kong-traded stocks.
"Many
clients have kept asking us about the possibility
of buying Hong Kong stocks, since the overall
prices of A-share companies have grown higher.
Since the amount of a forex purchase under the
program is no longer limited by the annual
US$50,000 quota, we believe our new proposed Hong
Kong stocks fund will be very attractive," he
said. Hu added that market forces would also
narrow the price gap between A-shares and
H-shares.
Olivia Chung is a
senior Asia Times Online reporter.
(Copyright 2007 Asia Times Online Ltd.
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