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Foreign investors may be keen to snap up Chinese stocks, but their confidence would be boosted by greater transparency and improved management of Chinese firms, a global finance expert said Tuesday.
Sanford Bragg, an executive managing director at Standard & Poor's, a global financial service provider, said that strong demand and interest exists among overseas investors amid expectations of the long-term growth of Chinese firms.
Apart from the rapidly expanding group of qualified foreign institutional investors, who are authorized to buy A shares and bonds in China, other overseas investors are becoming increasingly interested in overseas listed Chinese stocks and are considering increasing the amount of such stocks in their portfolios.
Investors in the United States, for example, are more likely to invest overseas, given the weakness of the US dollar, Bragg said. And that expands the investor base for Chinese stocks.
Standard & Poor's is therefore planning to expand its research team for Chinese equities by moving more overseas experts to China and recruiting more local researchers here, Bragg told China Daily.
About half of the Asian stocks Standard & Poor's equity research is currently studying are Chinese stocks, mostly H shares and other overseas-listed stocks.
"Our presence on Chinese stocks is mainly focused on sectors that are more international, with higher transparency," said Lorraine Tan, director of research in Asian Equity Research Services of Standard & Poor's.
Energy, transport and utilities stocks that have more transparency and a higher cash flow are the preferred choices, she said.
Statistics indicated that the 43 H-share companies listed in Hong Kong realized more than 100 billion yuan (US$12 billion) of profits in the first half of the year, a 50 percent increase year-on-year.
H shares are returning to the upward track, after a consolidation earlier this year and profit-taking in the second quarter, said Tan.
Management and information disclosure are two important elements for investors to decide the investment value of these stocks.
A number of Chinese companies, including major State-owned banks, are seeking access to the overseas capital markets to enhance their strength.
But overseas investors are obviously more prudent when it comes to selecting stocks, although long-term overall demand for Chinese stocks remains strong.
It is unlikely that there will be a rush for Chinese initial public offerings (IPOs) overseas in the near term, said Tan.
"China is a long-term development story," she said. "A lot of people still want access (to the market)."
But the result of an individual IPO still depends on pricing - whether it is up to global standards, the operation of the company and consistency in terms of efficiency and corporate results, she said.
Information disclosure is also a major concern.
China is still a developing market, and many regulatory changes are taking place as it is transferring to a market economy, said Tan.
In the long run, the momentum of the Chinese economy remains very attractive.
Tan predicted the Chinese economic growth rate to be around 9 percent this year, slowing down moderately to 8 percent next year, as the central government's macroeconomic cooling policies take effect.
(China Daily October 20, 2004)
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