Mainland China’s equity market will continue to
grow and become more open to global investors, although the Chinese
government’s monetary policy shift may slow down growth in 2008. In
contrast, Hong Kong’s equity market is already quite mature and open.
The equity market in mainland China is an emerging
one with limited foreign access. The number of IPOs in 2006 increased
significantly, and funds raised in 2006 were extremely high. The
prosperity of the primary market was not only due to the large number of
IPOs, but also due to some mega-IPOs in 2006. In a new report, Equity
Market Trends in Mainland China and Hong Kong, Celent separately
examines both mainland China and Hong Kong’s markets and provides
suggestions for securities firms interested in giving foreign investors
access to Chinese equities.
The number of IPOs and funds raised will continue
rapid growth in 2007 and 2008. The IPO price-earnings/ratio for the first
half of 2007 was over 30, encouraging more companies to be listed in the
local capital market. IPOs of large-scale state-owned companies will
continue the mega-IPO trend in China.
For the secondary market, stock market turnover
increased remarkably to over US$1.1 trillion for 2006. This trend will
continue, with market turnover reaching US$6 trillion for 2007.
Unlike the mainland, Hong Kong’s equity market is
quite mature and open already. There are more institutional investors:
overseas institutions' transaction values account for 39% of the market,
local institutions make up 26%, and overseas investors account for 40%.
Hong Kong was the second largest IPO destination after London in 2006. For
secondary market trading, it was ranked sixth worldwide, and second in
Asia at the end of 2006. Mainland China’s stocks play an increasingly
important role in the Hong Kong Exchange market. H-share and red-chip
stocks represent 45% of total market capitalization and 64% of market
turnover.
Both mainland China and Hong Kong’s equity markets
will continue to grow in the coming years. More financial institutions and
large state-owned enterprises will be listed in Shanghai Stock Exchange,
Hong Kong Exchange, or both. Overseas IPOs and Hong Kong IPOs continue to
be the major exit option for venture capital and private equity, but the
secondary market’s growth rate may slow down because of the Chinese
government’s shift in monetary policy from prudent to tightening at the
end of 2007.
"Overseas investors have limited access to
directly invest in China’s equity market. Only 52 qualified foreign
institutional investors were able to invest in China’s A-share market as
of January 31, 2007, with the total quota for these QFIIs reaching US$10
billion," says Wenli Yuan,
Celent senior analyst and author of the report. "China’s equity
market will become more open to foreign investors in the coming years,
with the total quota for QFIIs increasing to US$30 billion. More joint
venture brokerage houses will be approved, and JVs will be allowed to
gradually expand their business scope. QFIIs will receive quotas for
futures investments as well," she adds.
A table of contents is
available online. The report is 29 pages and contains 23 figures and 7
tables.
