July 2016
THE MYTH OF “LOW” VALUATION
OF STOCKS IN THE
HONG KONG MARKET:
TRUE OPPORTUNITIES TO
INVESTORS AND ISSUERS
Chief China Economist’s Office
AGENDA
1
General Market Perceptions
2
Price Differentials in the Secondary Market
3
Price Differentials in the Primary Market
4
Sources of Difference
5
Opportunities Offered by the Hong Kong Market
6
Conclusion
2
DISCLAIMER
The information contained in this presentation is for general informational purposes only and does not constitute an offer,
solicitation, invitation or recommendation to subscribe for or purchase any securities or other products or to provide any
investment advice of any kind. This presentation is not directed at, and is not intended for distribution to or use by, any person
or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation or which would
subject Hong Kong Exchanges and Clearing Limited (“HKEX”) to any registration requirement within such jurisdiction or
country.
This presentation contains forward-looking statements which are based on the current expectations, estimates, projections,
beliefs and assumptions of HKEX about the businesses and the markets in which it and its subsidiaries operate or aspires to
operate in. These forward-looking statements are not guarantees of future performance and are subject to market risk,
uncertainties and factors beyond the control of HKEX. Therefore, actual outcomes and returns may differ materially from the
assumptions made and the statements contained in this presentation. The implementation of these initiatives is subject to a
number of external factors, including government policy, regulatory approval, the behaviour of market participants, competitive
developments and, where relevant, the identification of and successful entry into agreements with potential business partners.
As such, there is no guarantee that the initiatives described herein will be implemented, or that they will be implemented in the
form and timeframe described herein.
Although the information contained in this presentation is obtained or compiled from sources believed to be reliable, HKEX
does not guarantee the accuracy, validity, timeliness or completeness of the information or data for any particular purpose,
and shall not accept any responsibility for, or be liable for, errors, omissions or other inaccuracies in the information or for the
consequences thereof. The information set out in this presentation is provided on an “as is” and “as available” basis and may
be amended or changed. It is not a substitute for professional advice which takes account of your specific circumstances and
nothing in this document constitutes legal advice. HKEX shall not be responsible or liable for any loss or damage, directly or
indirectly, arising from the use of or reliance upon any information provided in this presentation.
3
1. General Market Perceptions
Valuation by market capitalisation (MC)-weighted PE ratio of market index
•
Low PE ratio of Hang Seng Composite Index vs A-share indices
•
A shares at a premium as measured by the Hang Seng China AH Premium Index
•
Superficially, the Hong Kong market has lower valuation than the Mainland A-share
market
Month-end PE ratios of HK and Mainland
Hang Seng China AH Premium Index
Daily closings of Hang Seng China AH Premium Index (2010 - May 2016)
Month-end PE ratios of Hong Kong, Shanghai and Shenzhen markets (2010 - May 2016)
80
160
70
150
60
140
6,000
Hang Seng China AH Premium Index (LHS)
SSE A-Share Index (RHS)
HSI (rebased on 1/12/2014 at SSE A-Share Index level)
50
47.53
SZSE A
40
A shares
at premium
PE ratio (times)
5,000
30
New premium range
4,000
130
120
3,000
110
2,000
Data source: Wind
SSE A
SZSE A
04/09/2015
04/11/2015
04/01/2016
04/03/2016
04/05/2016
0
04/09/2014
04/11/2014
04/01/2015
04/03/2015
04/05/2015
04/07/2015
01/2010
03/2010
05/2010
07/2010
09/2010
11/2010
01/2011
03/2011
05/2011
07/2011
09/2011
11/2011
01/2012
03/2012
05/2012
07/2012
09/2012
11/2012
01/2013
03/2013
05/2013
07/2013
09/2013
11/2013
01/2014
03/2014
05/2014
07/2014
09/2014
11/2014
01/2015
03/2015
05/2015
07/2015
09/2015
11/2015
01/2016
03/2016
05/2016
Month/Year
HS Composite
80
04/09/2013
04/11/2013
04/01/2014
04/03/2014
04/05/2014
04/07/2014
Hang Seng Composite
0
1,000
90
04/09/2012
04/11/2012
04/01/2013
04/03/2013
04/05/2013
04/07/2013
10
100
04/09/2011
04/11/2011
04/01/2012
04/03/2012
04/05/2012
04/07/2012
14.16
11.84
9.12
04/09/2010
04/11/2010
04/01/2011
04/03/2011
04/05/2011
04/07/2011
SSE A
04/01/2010
04/03/2010
04/05/2010
04/07/2010
20
A shares
at discount
CSI300
CS
CSI300
4
2. Price Differentials in the Secondary Market
Differentials across indices in a market
PE of
key indices in HK vs Shanghai
Month-end PE ratios of key indices in Hong Kong and Shanghai (2010 - May 2016)
25
•
Valuation of different Mainland
stocks listed in HK also varies.
•
HSI
HSCEI
HSCCI
SSE 50
20
PE ratio (times)
On Shanghai Stock Exchange (SSE)
and Shenzhen Stock Exchange
(SZSE), the more smaller-sized
stocks are included in an index, the
higher the PE ratio tends to be.
15
HSCCI
12.38
SSE 50
9.25
8.87
HSI
6.55
10
HSCEI
5
01/2010
03/2010
05/2010
07/2010
09/2010
11/2010
01/2011
03/2011
05/2011
07/2011
09/2011
11/2011
01/2012
03/2012
05/2012
07/2012
09/2012
11/2012
01/2013
03/2013
05/2013
07/2013
09/2013
11/2013
01/2014
03/2014
05/2014
07/2014
09/2014
11/2014
01/2015
03/2015
05/2015
07/2015
09/2015
11/2015
01/2016
03/2016
05/2016
0
Month/Year
PE of key Month-end
indices
on SZSE
PE ratio of key indices in Shenzhen (2010 - May 2016)
PE of key Month-end
indices
on SSE
PE ratio of key indices in Shanghai (2010 - May 2016)
160
70
SSE A
SSE 50
SSE 180
SZSE A
SSE 380
SZSE Component
SME
ChiNext
140
60
ChiNext
120
50
SSE 380
100
41.45
Times
Times
40
80
77.71
30
SME
60
56.34
SSE A
47.53
20
40
SSE 180
10
SSE 50
14.16
10.31
9.25
SZSE A
31.70
20
SZSE Component
0
01/2010
03/2010
05/2010
07/2010
09/2010
11/2010
01/2011
03/2011
05/2011
07/2011
09/2011
11/2011
01/2012
03/2012
05/2012
07/2012
09/2012
11/2012
01/2013
03/2013
05/2013
07/2013
09/2013
11/2013
01/2014
03/2014
05/2014
07/2014
09/2014
11/2014
01/2015
03/2015
05/2015
07/2015
09/2015
11/2015
01/2016
03/2016
05/2016
01/2010
03/2010
05/2010
07/2010
09/2010
11/2010
01/2011
03/2011
05/2011
07/2011
09/2011
11/2011
01/2012
03/2012
05/2012
07/2012
09/2012
11/2012
01/2013
03/2013
05/2013
07/2013
09/2013
11/2013
01/2014
03/2014
05/2014
07/2014
09/2014
11/2014
01/2015
03/2015
05/2015
07/2015
09/2015
11/2015
01/2016
03/2016
05/2016
0
Month/Year
Month/Year
Data source: Wind
5
2. Price Differentials in the Secondary Market
Differentials across company size
PE ratio and MC of listed stocks on HKEX (as of 31/5/2016)
PE byScatterplot
MC onofHKEX
(Excluding PE ratios > 100 times)
100
•
On SSE and SZSE, the larger the
company size (measured by MC),
the lower the PE ratio tends to be.
* Statistically insignificant
80
70
PE ratio by (times)
•
Rank correlation coefficient:
0.0294*
90
In the HK market, the PE is rather
stock specific, irrespective of the
company size.
60
50
40
30
20
10
0
0
500
1,000
1,500
2,000
Market capitalisation (HKD bil)
Scatterplot of PE ratio and MC of listed A shares on SSE (as of 31/5/2016)
PE by MC
on SSE (Excluding PE ratios > 100 times)
PE ratio and MC of listed A shares on SZSE (as of 31/5/2016)
PE by Scatterplot
MC on ofSZSE
(Excluding PE ratios > 100 times)
100
80
80
70
70
60
50
40
* Statistically significant at 0.1% level
60
50
40
30
30
20
20
10
10
0
Rank correlation coefficient:
-0.2393*
90
* Statistically significant at 0.1% level
PE ratio by (times)
PE ratio by (times)
100
Rank correlation coefficient:
-0.4341*
90
0
0
500
1,000
1,500
0
50
Market capitalisation (RMB bil)
Source: HKEX analysis based on data from Wind for SSE and SZSE, HKEX market data for HKEX
100
150
200
250
Market capitalisation (RMB bil)
6
2. Price Differentials in the Secondary Market
Differentials across industrial sectors
•
SSE stocks in the relatively mature industries of Financials and Utilities had similarly low
(MC-weighted) PE as their HK counterparts.
•
HK-listed H shares had higher (MC-weighted) PE than the HK blue chips in the
Industrials and Energy sectors but lower (MC-weighted) PE in other sectors where both
had constituent stocks for comparison.
•
The SZSE market, consisting of mostly small growth companies, had the highest (MCweighted) PE across almost all sectors.
•
Industrial sector may not be a crucial factor in stocks’ PE but stocks in certain sectors, by
sector nature, may tend to have higher or lower PE than other sectors.
(See chart on next slide)
7
2. Price Differentials in the Secondary Market
Differentials across industrial sectors
MC-weighted PE ratio by sector of HK and Mainland indices
PE ratio by sector of HK and Mainland indices
MC-weighted
PE by sector(31
in May
Hong
Kong and Mainland (31 MayMC-weighted
2016)
2016)
(31 May 2016)
A50
34.86
CSI300
Telecommunication
49.41
37.65
Materials
13.52
14.32
17.16
15.71
8.36
14.84
13.80
HSI
59.97
Information Technology
HK (All market) Utilities
38.45
42.95^
^ Based on a single
company only
27.14
18.97
11.71
18.12
20.05^
20.33
32.72
28.61
17.93^
19.26
18.70
11.19
16.36
50.02
Consumer Staples
19.24
8.95
5.42
7.36
33.00
32.63
6.95
7.61
14.35
7.73
5.13
7.27
7.54
0
^ Based on a single
company only
43.42
31.29
21.47^
Health Care
8.70
Financials
HK (All market)
28.95
31.42
21.02
Industrials
HSI
72.76^
9.59
14.89
Consumer Discretionary
SSE Composite
HSCEI
HSCEI
24.88
30.58
SZSE Composite
11.84^
14.04
14.21
SSE Composite
14.50
CSI300
97.73^
32.49
Services
SZSE Composite
11.72
A50
31.93^
32.49
54.12
Energy
32.83
19.69
18.95
18.12
50
100
Times
0
Source: HKEX analysis based on GICS classification, MC and earnings data from Bloomberg.
50
100 Times
8
2. Price Differentials in the Secondary Market
Differentials across A-H stocks
•
The larger the company size, the smaller the A-H price premium irrespective of the
industrial sector (believed to owe to the negative relationship between stock valuation and
MC for stocks listed in the Mainland).
A-H price premium
vs MC (31 May 2016)
Scatterplot of AH share price premium (as of 31/5/2016)
A-H price premium across sector (31 May 2016)
Average A-H price premium across industrial sector (31 May 2016)
700%
Rank correlation coefficient:
-0.5929*
600%
82%
Utilities
* Statistically insignificant
Price premium
500%
25%
Consumer Staples
400%
Energy
300%
Materials
200%
Information Technology
Price premium differentials
are statistically insignificant
across sectors
62%
Health Care
115%
111%
126%
130%
Consumer Discretionary
100%
119%
Industrials
0%
38%
Financials
-100%
0
500
1,000
0%
1,500
20%
40%
60%
80%
100%
120%
140%
Average A-shares price premium over H shares
Stock (A+H) market capitalisation (HKD bil)
Note: Excluding two cases without price data.
Source: HKEX analysis based on GICS classification and price data from Bloomberg.
9
3. Price Differentials in the Primary Market
•
During the period of 2012 to May 2016, IPOs in Hong Kong had higher valuation than
IPOs in Shanghai in a number of sectors (and higher valuation than IPOs in Shenzhen
for some of these sectors) — Consumer Discretionary, Consumer Staples, Energy,
Health care and Utilities.
MC-weighted PE of IPOs in HK vs Mainland (2012 – May 2016)
By year
By industrial sector
MC-weighted PE ratio of IPOs in Hong Kong and Mainland by sector (2012 - May 2016)
MC-weighted PE ratio of IPOs in Hong Kong and Mainland by year (2012 - May 2016)
180
40
[53] [22] [127]
[94] [0] [0]
[95] [41] [81]
[102] [89] [129]
[26] [20] [28]
HK
140
24.4
23.5
25
20
18.3
23.3
24.2
21.2
19.9
19.9
17.7
20.1
18.2
13.9
15
PE ratio (times)
30
PE ratio (times)
169
Shenzhen
160
33.6
35
Shanghai
120
100
80
60
Telecom
Services
Shenzhen
] No. of IPOs (excluding cases with negative or null PE value)
Jan-May 2016
Utilities
Shanghai
2015
Materials
HK
[
2014
13
38
28
28
24
2225 25
21
20
1720
14
IT
2013
26
28
22
Health Care
0
2012
29
Financials
0
9
Energy
20
Consumer
Staples
5
35
26 26 292527 30
21
Consumer
Discretionary
40
Industrials
43
10
[ ] No. of IPOs
Note: Excluding cases with negative or null PE value.
Source: HKEX analysis based on data from Bloomberg.
10
3. Price Differentials in the Primary Market
•
IPO in Hong Kong had higher valuation than those in the Mainland for multiple sectors in
each year after 2013.
MC-weighted PE of IPOs in HK vs Mainland by sector
2012
2014
MC-weighted PE ratio of IPOs in Hong Kong and Mainland by sector (2012)
MC-weighted PE ratio of IPOs in Hong Kong and Mainland by sector (2014)
19
Utilities
Utilities
38
11
Materials
Materials
20
[10]
[5]
[20]
27
10
IT IT
34
11
Industrials
Industrials
20
38
[12]
[6]
[31]
35
22
Financials
Financials
48
Energy
Energy
16
Consumer
Consumer
Staples
Staples
Consumer
Consumer
Discretionary
Discretionary
47
13
39
0
10
[6]
[0]
[1]
18
14
24
20
HK
33
30
PE ratio (times)
Shanghai
40
Shenzhen
Utilities
Utilities
50
[2]
[0]
[5]
20
18
14
Materials
Materials
[5]
[3]
[38]
30
Care
HealthHealth
Care
[2]
[0]
[2]
20
ITIT
47
24
25
[14]
[0]
[1]
8
22
Energy
Energy
7
Consumer
Consumer
Staples
Staples
Consumer
Consumer
Discretionary
Discretionary
60
[16]
[11]
[23]
30
22
Financials
Financials
[15]
[7]
[16]
29
11
Care
HealthHealth
Care
[1]
[1]
[2]
36
22
Industrials
Industrials
[0]
[0]
[12]
[7]
[3]
[8]
22
28
21
29
17
0
10
[ ] No. of IPOs
[ ] No.
of IPOs
25
20
HK
[8]
[4]
[5]
32
30
PE ratio (times)
Shanghai
Shenzhen
40
[4]
[4]
[9]
[0]
[1]
[0]
[31]
[8]
[11]
50
MC-weighted PE of IPOs in HK higher than in Mainland
Note: IPOs in the Mainland market was suspended in 2013.
Excluding cases with negative or null PE ratios.
Source: HKEX analysis based on data from Bloomberg.
[9]
[7]
[24]
No. of IPOs
[ ] No.[ ] of
IPOs
Note: Excluding cases with negative or null PE value.
Note: Excluding cases with negative or null PE value.
[6]
[3]
[0]
11
3. Price Differentials in the Primary Market
MC-weighted PE of IPOs in HK vs Mainland by sector
Jan – May 2016
2015
MC-weighted PE ratio of IPOs in Hong Kong and Mainland by sector (Jan-May 2016)
MC-weighted PE ratio of IPOs in Hong Kong and Mainland by sector (2015)
Telecom
Telecom
Services
Services
169
[2]
[2]
[0]
96
21
Utilities
Utilities
12
Materials
Materials
21
20
18
21
18
16
19
21
Information
IT
Technology
Industrials
Industrials
Health
Care
Health
Care
Energy
Energy
29
Consumer
Consumer
Discretionary
Discretionary
21
21
0
20
[1]
[3]
[2]
41
21
21
26
22
20
Consumer
Consumer
Staples
Staples
[12]
[7]
[13]
43
21
22
13
Financials
Financials
[10]
[7]
[28]
[14]
[25]
[20]
33
40
60
HK
80
100
PE ratio (times)
Shanghai
120
140
Shenzhen
Note: Excluding cases with negative or null PE value.
160
[1]
[0]
[0]
21
Materials
Materials
[0]
[5]
[2]
23
[2]
[0]
[4]
42
[5]
[14]
[23]
ITIT
15
13
Industrials
Industrials
[28]
[22]
[40]
[19]
[3]
[0]
[10]
[6]
[3]
180
15
Health
Care
Health
Care
[6]
[3]
[16]
19
20
[1]
[1]
[0]
20
[7]
[0]
[1]
10
Financials
Financials
22
Consumer
Consumer
Staples
Staples
16
Consumer
Consumer
Discretionary
Discretionary
20
19
0
5
10
15
[ ] No. of IPOs
[ ] No. of IPOs
HK
[0]
[2]
[4]
20
[5]
[4]
[1]
37
21
25
30
PE ratio (times)
Shanghai
35
40
45
50
[ ] No. of IPOs
[ ] No. of IPOs
Shenzhen
Note: Excluding cases with negative or null PE value.
MC-weighted PE of IPOs in HK higher than in Mainland
Note: Excluding cases with negative or null PE ratios.
Source: HKEX analysis based on data from Bloomberg.
12
4. Sources of Difference
Market norms of PE ratio
•
Each stock market in the world1, irrespective of the degree of openness, tends to
maintain its “normal” level of PE ratio during a period of time — the market norm.
•
Possible underlying factors: industry composition, listed companies’ stage of
development, investor base or structure, investor maturity and their investment behavior.
Month-end PE ratios of selected
worldPE
key
indices
(Jankey
2011
– May(2011
2016)- May 2016)
Month-end
ratio
of world
indices
35
PE ratio (times)
30
25
Nasdaq100
Nikkei 225
20
S&P500
DJIA
KOSPI
15
FT STI
10
HSI Composite
DJIA
S&P500
Nasdaq100
Nikkei 225
KOSPI
05/2016
03/2016
01/2016
11/2015
09/2015
07/2015
05/2015
03/2015
01/2015
11/2014
09/2014
07/2014
05/2014
03/2014
01/2014
11/2013
09/2013
07/2013
05/2013
03/2013
01/2013
11/2012
09/2012
07/2012
05/2012
03/2012
01/2012
11/2011
09/2011
07/2011
05/2011
03/2011
5
01/2011
HSI Composite
FT STI
Wind for HSI Composite, Bloomberg for other indices (data is not available for KOSPI during Mar-Aug 2013).
The Korean market is a Source:
special
case where the PE ratio fluctuated a lot.
Data source: Wind for HSI Composite, Bloomberg for other indices (data is not available for KOSPI during Mar-Aug 2013).
1
13
4. Sources of Difference
Industry composition of listed companies
•
Markets with more weighting by MC in new economy industries (e.g. technology and
health care) would tend to have a higher MC-weighted average PE level.
•
Markets with more weighting in the financial industry would tend to have a lower PE level.
HK vs US market
HK vs Mainland market**
MC weighting
MC weighting
PE
Financials
IT
Health care
All HK
stock*
43%
10%
2%
9.12
DJIA^
20%
14%
12%
15.61
S&P500^
17%
17%
14%
19.18
Nasdaq
100^
0.1%
52%
14%
23.50
* As at 31 May 2016; source: HKEX analysis based on data from Bloomberg
^ As at end-2015; source: “The Nasdaq-100, Trading Innovation in Large-Cap Growth”, Feb 2016
** As at 31 May 2016; source: HKEX analysis based on data from Bloomberg
PE
Financials
IT
Health care
HSCEI
81%
—
1%
5.78
FTSE A50
61%
2%
1%
9.06
HSI
48%
13%
—
9.68
CSI300
42%
5%
4%
11.83
SSE
37%
4%
4%
13.47
SZSE
10%
22%
10%
35.94
14
4. Sources of Difference
Dividend yield as part of stock valuation
•
Dividend yield in HK, Shanghai and US
Month-end 12-mth dividend yield of key indices in Hong Kong, Shanghai & US (2010 - May 2016)
Indices having higher PE ratio tend
to have a lower dividend yield and
vice versa, probably due to the
nature of the constituents (growth
stocks vs mature stocks).
7
HSCEI
6
5.27
5
HSCCI
4.25
4.12
Percent (%)
4
Stocks/markets with low PE may be
compensated by high dividend
yields in total return.
HSI
3.19
3
SSE 50
S&P 500
2
2.10
2.14
1.48
1
1.20
1.19
Nasdaq 100
1.15
1.11
0.93
0.74
2.08
1.90
1.81
0
01/2010
03/2010
05/2010
07/2010
09/2010
11/2010
01/2011
03/2011
05/2011
07/2011
09/2011
11/2011
01/2012
03/2012
05/2012
07/2012
09/2012
11/2012
01/2013
03/2013
05/2013
07/2013
09/2013
11/2013
01/2014
03/2014
05/2014
07/2014
09/2014
11/2014
01/2015
03/2015
05/2015
07/2015
09/2015
11/2015
01/2016
03/2016
05/2016
•
Month/Year
HSI
Dividend yield of key indices in Shanghai
HSCEI
HSCCI
SSE 50
Nasdaq 100
S&P 500
Dividend
yield of key indices in Shenzhen
Month-end 12-mth dividend yield of key indices in Shenzhen (2010 - May 2016)
Month-end 12-mth dividend yield of key indices in Shanghai (2010 - May 2016)
2.5
5.0
4.5
2.0
4.0
SSE 50
3.19
3.0
2.70
SSE 180
2.5
2.0
1.98
1.5
Times
Percent (%)
3.5
1.0
SZSE A
SSE A
SZSE Component
0.81
1.5
1.0
0.99
0.59
0.52
0.5
SME
SSE 380
0.27
0.5
ChiNext
01/2010
03/2010
05/2010
07/2010
09/2010
11/2010
01/2011
03/2011
05/2011
07/2011
09/2011
11/2011
01/2012
03/2012
05/2012
07/2012
09/2012
11/2012
01/2013
03/2013
05/2013
07/2013
09/2013
11/2013
01/2014
03/2014
05/2014
07/2014
09/2014
11/2014
01/2015
03/2015
05/2015
07/2015
09/2015
11/2015
01/2016
03/2016
05/2016
01/2010
03/2010
05/2010
07/2010
09/2010
11/2010
01/2011
03/2011
05/2011
07/2011
09/2011
11/2011
01/2012
03/2012
05/2012
07/2012
09/2012
11/2012
01/2013
03/2013
05/2013
07/2013
09/2013
11/2013
01/2014
03/2014
05/2014
07/2014
09/2014
11/2014
01/2015
03/2015
05/2015
07/2015
09/2015
11/2015
01/2016
03/2016
05/2016
0.0
0.0
Month/Year
Month/Year
SSE A
Data source: Wind
SSE 50
SSE 180
SSE 380
SZSE A
SZSE Component
SME
ChiNext
15
4. Sources of Difference
Mainland’s specific factors
Mainland
Hong Kong
•
•
•
•
•
•
•
Dominance of local retail investors
Investor preference in small-sized,
high-risk stocks for higher potential
gains
Smaller the company size, higher
the PE
High turnover velocity (2015):
 SSE — 499%
 SZSE — 521%
Investors would be willing to pay
more for stocks with higher liquidity
Lack of structured products and
equity derivatives  investment
concentrated in stocks, lacking
arbitrage and hedging opportunities
Investor
preference
•
•
•
Liquidity
premium
•
•
Hedging/arbitrage
opportunities
•
Dominance of global professional,
institutional investors
Even retail investors are relatively
mature
Less speculative trading and more
reliance on stock fundamentals
Turnover velocity not as high: 106%
(in 2015)
Partial connectivity through
Shanghai-HK Stock Connect is
limited for levelling out the liquidity
differential
Abundant structured products and
arbitrage/hedging tools like index
futures and options
Supporting rational price seeking in
stocks
16
5. Opportunities Offered by the Hong Kong Market
Lower-priced
H shares of AH
stocks
Benefit from higher dividend yield than holding corresponding A shares on
the same stock fundamentals
Comprehensive
range of investment
tools
Enhanced capability to cope with risky market conditions and exposed to
more profit opportunities than in the Mainland
Higher IPO pricing
in certain industries
E.g. consumer goods, energy and health care
Market appetite for
new economy
stocks
Plenty of room for more stocks in new economy industries like IT and health
care
More flexible IPO
and post-listing
fund raising regime
Enabling timely commercial decision of IPO and post-listing fund raising
activities
International listing
platform
A platform with international investment practice and regulatory standards
and professional investor base to offer issuers opportunities in international
branding and global business expansion
17
6. Conclusion
Myth
“Low” valuation of stocks
listed in Hong Kong vis-à-vis
Mainland China
Facts
•
•
Mainland market has
positive valuation
differentials at the macro
level
Hong Kong market has
positive valuation
differentials at the micro
level of individual stocks
and industries
Sources of price
differentials
•
Difference in market
characteristics — each
market has its “market
norm” of PE level
Opportunities offered by
HK
•
Lower-priced higher yield
H shares of A-H stocks
•
Profit opportunities and
risk management offered
by hedging/arbitrage tools
•
Industry composition
varies
•
Dividend yield as part of
stock valuation
•
Higher pricing in certain
industry sectors
•
Mainland investors’
preference for small-sized
high-risk stocks
•
Market appetite for stocks
in new economy
industries
•
Liquidity premium in the
Mainland
•
Flexible IPO and fund
raising regime
•
Lack of investment
opportunities and
instruments for
hedging/arbitrage
•
International listing
platform
18