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'Cheap' HK stocks in demand

(China Daily/Agencies)
Updated: 2009-10-29 08:19

"Cheap" Hong Kong stocks will be targeted as the mainland expands a program for local investors to buy equities and bonds overseas, according to Lewis Wan, chief investment officer of Pride Investment Group Ltd.

E Fund Management Co said on Oct 26 it received a $1-billion quota to invest overseas under the qualified domestic institutional investor (QDII) program, the first approval by the authorities in 17 months.

QDII funds are the only route for mainland investors to buy overseas stocks and bonds. Hong Kong-traded shares of mainland companies typically trade at a discount to mainland listings.

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"We've seen a lot of mainland money trying to invest overseas, especially in Hong Kong shares because of the cheap valuations and as a lot of the shares can't be bought on the A-share market," said Wan, whose Pride China Fund has gained 59 percent this year.

"At the beginning, mostly they will invest in the big shares, for example China Mobile or CNOOC."

Stocks on Hong Kong's Hang Seng Index trade at 24.09 times reported earnings, less than the Shanghai Composite Index's multiple of 34.18, according to Bloomberg data. The regulator may issue more than $4 billion of new quotas, Z-Ben Advisors estimates.

China Mobile Ltd, the world's first phone company with more than half a billion subscribers, has declined 2.6 percent this year, compared with a 54-percent rally by Hong Kong's benchmark gauge.

CNOOC Ltd, the nation's biggest offshore oil producer, has climbed 72 percent in 2009. Neither stock is listed in the mainland markets.