Dr Chan: The Market Takes A “Wait And See” Attitude

Xi Jinping Shows Goodwill

The Hang Seng Index returned to above 31,000 points at a point in time on 11 April, but could not hold onto gains as it fell back down to close the day flat.

On the US-China trade war front, US President Donald Trump has yet to respond to China’s President Xi Jinping’s show of goodwill. Xi has pledged to slash tariffs on imported cars and promised to open China’s markets. Meanwhile, the market is just adopting a “wait and see” attitude.

This is because Xi’s “benevolent” words were a mere repetition of what he had said in the 19^th National Congress of the Communist Party of China. The specific details of the policies are yet to be announced.

For instance, when will China cut car import tariffs and by how much? When and how is it going to open its financial sector? Trump is probably also waiting for China to announce the specific market opening measures.

Riding On China’s Financial Sector Reforms

The share price of AIA Group Ltd (1299.HK) hit a record high on Tuesday, as investors probably cheered to Xi’s speech. In the past, I have recommended AIA many times as it will certainly stand to benefit from China’s policy to open its financial sector.

Time is the only concern. China’s financial policy has long been conservative and it has been slow with allowing more foreign access. Despite decades of talks to open up its capital markets, there are still crackdowns on capital outflows. In addition, there are also smaller scale measures in place, including a cap on ordinary overseas bank card withdrawals by ordinary Chinese bank account owners. Large companies are also banned or restricted from transferring money overseas. As a result, Macau gaming stocks and other listed corporations took a beating in share prices.

The correction in Macau gaming stock prices though usually presents bargain-hunting opportunities. After all, in the bigger scheme of things, the renminbi is set to go global. Small austerity measures on capital outflow are often not too worrying, but the larger – more pronounced – measures could amount to heavy losses when overseas acquisitions are halted.

Currently, shares of AIA Group have risen on the speculation of reforms in China’s financial sector. For more comprehensive assessment, it is better that we wait for more details on reform policies.

That said, AIA would not be the sole beneficiary to China’s financial sector reforms. Shares of HSBC Holdings PLC (005.HK), Hang Seng Bank Ltd (011.HK), Bank of East Asia Ltd (023.HK), Chong Hing Bank Ltd (1111.HK), Standard Chartered PLC (2888.HK), and Dah Sing Banking Group Limited (2356.HK) all stand to ride on this investment theme.

After over a month or so, MSCI will officially add China A shares to its emerging markets index. Yet another piece of good news, the Chinese government has decided to increase the daily southbound quota for the Shanghai-Hong Kong and Shenzhen-Hong Kong stock connect, starting from May 1.