UBS tells investors to seize opportunity as China opens access

CHINA’S recent move to enhance foreigners’ access to its equity markets is a great opportunity for Australian investors, says UBS.

China is allowing global investors access to hundreds of Chinese companies.

CHINA’S recent move to enhance foreigners’ access to its ­equity markets is a great opportunity for Australian investors, says one of the largest global investment banks in Asia.

“There is a fabulous opportunity for stockpicking experts of Australia to capitalise on the liquidity and companies that are available in China,” UBS head of direct execution Steve Hammerton said on the sidelines of the bank’s annual China conference in Shanghai.

“It’s historically been hard to invest in China, but it’s opening up quickly.

“These companies are under-researched and that is the greatest opportunity because if you’re prepared to do the work, there’s 995 companies in Shenzhen alone and the proportion covered by international broking houses is minuscule.

“So if you can find companies hideously undervalued and you are a growth or value investor it’s an amazing opportunity.”

As part of the opening up of China’s capital markets to global investors, the “Shanghai Hong Kong Stock Connect” opened last month, allowing global investors access to hundreds of Chinese companies through Hong Kong.

Previously, flows from “qualified foreign institutional investors” were essentially capped to $US85 billion ($104.3bn), with AMP and Macquarie the only Australian funds able to invest.

Stock Connect provided an additional $US50bn, with about $US12bn being taken up so far. But as it is not a hard limit, access to China has been massively expanded.

With foreigners making up just 3 per cent of China’s rapidly developing market, UBS head of equities in the region Yang Xia said that figure could rise to 20 per cent in the next five years.

Shanghai was the world’s best performing stockmarket last year, up more than 50 per cent as reforms kicked into gear, ending years of poor returns.

“Right now people are very curious about China,” Mr Xia said.

“Some investors have been taking some profits after the strong returns but we believe the market will stay around the current level, clearly with volatility, but it’s not expensive so global investors are coming back.

“Current stock prices will be supported as more money will come into the market.

“The market is super underdeveloped, meaning there is huge upside. Stock Connect was a catalyst for the market as people see hope it would bring international money.”

China’s equity market is unusual globally. Traders cannot buy and sell on the same day, and retail investors make up about 80 per cent of the markets in Shanghai and Shenzhen, which turn over a staggering $US40bn worth of shares a day. Australia trades about $4bn worth.

But the opening up of capital markets and relaxation of regulations in China is helping the institutional market develop quickly.

“The direction is very clear. I think it will become 60-40 retail and institutional and then 50-50 quite quickly within a few years,” Mr Xia said.

“It will happen much quicker than Australia or the US has done.

“When more institutions come in, international or domestic, the market will stabilise and become much more reliable.”

The reporter travelled to Shanghai courtesy of UBS.