There’s a disconnect happening with the Connect, says Tim Craighead, with the hint of a smile. The difference between China A shares, listed on the Shanghai exchange, and China H shares, in Hong King, has blown out despite the Shanghai-Hong Kong Connect stock passport system.
Craighead, the director for Asia Pacific at Bloomberg Intelligence, the research arm of the stock information and media company, was in Sydney last week from Hong Kong to speak at a Bloomberg client conference.
He said that there was a long history of spikes and retreats across the Chinese markets because of the retail nature and momentum-related style of investors.
“One of the bizarre things at the moment is the hype in mainland China relative to the global malaise, which has caused this disconnect with Hong Kong… This doesn’t typically last and it highlights individual companies. Investors should look at anomalies within the market as well as longer-term thematic issues.”
Graighead said that a potential problem was if the Chinese authorities got too distracted by the recent market fall and if this caused populist concern. “If the reform measures continue there will hopefully be a baton passed to a more fundamentally driven professional investment market,” he said. “They then have a real functioning capital market to support the economy. They need fundamentally driven capital markets.”
The Shanghai-Hong Kong Connect, launched last year, prompted a big rise in the A shares market, although volumes were lower than allowed for under the quota system. The system is designed to facilitate both south and north-bound investment in China.
Craighead’s area of special expertise is in analysing casino companies and gaming in the region, although Bloomberg analyses the industry on a global basis. The current theme with casinos, especially those in Macau, is a shift from relying on VIPs and high-rollers to the larger mass market. While waiting for this to drive a recovery in the market, investors are hoping for the new wave of resorts to attract customers or possibly the opening up of the Japanese market to big casinos, which is on the agenda.
Craighead said, half jokingly, that the recent slump in China A shares might send people to “another casino” to place their bets.
He points out that most of the voluntary suspensions of stocks in China have been among the smaller-cap companies, with more than 80 of the top 100 stocks still trading in Shanghai. He adds that they are trading at near or lower-than their western counterparts in terms of P:Es.
Bloomberg has about 250 staff in its Bloomberg Intelligence division, of whom 35 are in Hong Kong and Singapore. The company still gets most of its revenue from data feeds to its famous terminals but also has more than 2,000 journalists around the world being published across all platforms.
The disconnect between Shanghai and Hong Kong