China and US Equity Analyst

Roger Xie

10 year investment experience on public and private equity. Deep-dive fundamental research. Specialize in China and US market.

Cross Asset Strategy

<p>China’s ownership cap for foreign shareholders in securities and fund-management firms was scrapped as of April 1. This marks a significant milestone development for opening up of China capital market. For decades, foreign shareholders are allowed to own a minority interest in Chinese financial firms. Now with the increasing investment inflows from stock connect program and the usage of QFII (Qualified Foreign Institutional Investor) quota, China A-share market will embrace more foreign players.</p><p>How this could impact the investment styles in China A-share market ? Will it become more value-oriented or still keep the growth style ? We believe foreign investors will adopt the practical growth-oriented "new economy" style which is also inline with local investors. Tech-heavy small/mid-caps stocks look more compelling than their large-cap peers and could generate excessive return. Most of them are in "new economy" sectors, such as pharmaceuticals, hi-tech, media, consumer services, etc.  The number of listed small companies in China has grown more than five-fold in the last 10 years and now stands at more than 4,500. Moreover, their impact on the economy is growing. In contrast, large-cap companies are mostly SOE (State-Owned Enterprise). And the reform progress for them is relatively slow. We also think foreign investors will overweight tech and consumer oriented sectors with strong growth profile.</p>

China’s ownership cap for foreign shareholders in securities and fund-management firms was scrapped as of April 1. This marks a significant milestone development for opening up of China capital market. For decades, foreign shareholders are allowed to own a minority interest in Chinese financial firms. Now with the increasing investment inflows from stock connect program and the usage of QFII (Qualified Foreign Institutional Investor) quota, China A-share market will embrace more foreign players.How this could impact the investment styles in China A-share market ? Will it become more value-oriented or still keep the growth style ? We believe foreign investors will adopt the practical growth-oriented "new economy" style which is also inline with local investors. Tech-heavy small/mid-caps stocks look more compelling than their large-cap peers and could generate excessive return. Most of them are in "new economy" sectors, such as pharmaceuticals, hi-tech, media, consumer services, etc.  The number of listed small companies in China has grown more than five-fold in the last 10 years and now stands at more than 4,500. Moreover, their impact on the economy is growing. In contrast, large-cap companies are mostly SOE (State-Owned Enterprise). And the reform progress for them is relatively slow. We also think foreign investors will overweight tech and consumer oriented sectors with strong growth profile.

China A-Share Strategy: More Foreign Players in A-Shares and How Investment Styles Will Impact Them