15/3/2018-10

Paving CDR concept in Mainland China under pressure

In the early days, the Mainland made the “Unicorn" listed in the form of CDR (Chinese Depositary Trusted Securities) listed on the A-share market. This led Hong Kong and US-listed related concept stocks to outperform the market last week. The only exception is the Hong Kong Stock Exchange (0388), who is the sole agent. The stock price fell against the market last week. The analysis pointed out that the Hong Kong Stock Exchange’s recent reform of the listing system has the potential to target the same group of enterprises. Now that the Mainland has put forward the concept of CDR, the Hong Kong Stock Exchange can no longer do independent business.

The recent reforms proposed by the Hong Kong Stock Exchange, for example, allow the listing of companies with different shares of the same stock, both aimed at attracting new economic stocks to list in Hong Kong, especially Chinese-funded enterprises, and proposed to relax the requirements for the second listing, reflecting the fact that the Hong Kong Stock Exchange not only Companies that focus on IPOs (IPOs) are more interested in attracting public stocks that have been listed in the United States.

Related concepts stocks rose to HK Stock Exchange against the market last week

However, the potential targets for the CDR proposed by the Mainland are similar to those in this batch. According to mainland media reports, the regulatory authorities are focusing on biotechnology, cloud computing, artificial intelligence and high-end manufacturing. The first batch of CDRs include BAT (ie, Baidu, Alibaba, and Tencent (0700)), JD.com, and CE. Cheng, Weibo, Netease and Sunny Optical (2382). The stock prices of the above eight companies have outperformed the market in the past week, with cumulative increases ranging from 2% to 11%. In contrast, the stock price of HKEx fell 0.56% over the week against the market (see table).

Li Xueheng, an analyst at the South East ETF, said that returning A-shares to the A-shares would make it easier for Chinese investors familiar with their businesses to buy and sell, which will help increase valuations. Taking BAT as an example, the highest valuation is currently Tencent listed in Hong Kong, with a forecast price-earnings ratio of 40 times (see chart).

Analysis: CDR implemented or cut through Hong Kong stock transactions

Analyst Zhou Wenling, a senior securities analyst at Bosch Private Bank in Switzerland, said that once the HKEx has formed a competitive relationship with the mainland exchanges, it may be at a disadvantage because the Mainland has always been the main business location of this group of medium-term stocks. I believe they will return to A. Shares are the primary consideration. However, she believes that HKEx still has two major advantages. First, the CDR is still in the initial stage of conception, and the listing reform of the Hong Kong Stock Exchange will soon be implemented. It is expected to eat “head soup”. Secondly, many mainland companies hope to list overseas as a brand promotion, so they can still win over the future. The combination of “CDR + Hong Kong stocks" is a dual listing. Potential targets include Xiaomi and a number of biotech companies.

China Everbright Financial Wealth Management strategist Wen Jie believes that it is important to note that once Hong Kong stocks such as Tencent and Sunny Optical return to A-shares, mainland investors will not necessarily buy and sell these shares through Hong Kong stocks. Instead, they choose to purchase CDRs more directly. We weakened the trading of Hong Kong Stock Connect.