Panic selling and plummeting indices in Shanghai do not mean you should turn your clients away from China altogether. Here’s why.
All eyes are currently on China’s Shanghai Stock Exchange, which has plummeted 30% in just the last three weeks after 150% growth in the year preceding that period. This has caused panic among foreign investors, who have been selling off in droves.
But does this mean all investment avenues into the world’s second-largest economy should now be avoided?
Some experts say Hong Kong’s Hang Seng Stock Exchange could be a more lucrative alternative for foreign investors.
“Hang Seng shares didn’t fall as much as Shanghai, and it (Hang Seng) is almost back to normal levels already,” said Keith Porter, chief investment officer at Altervest, Quebec. “There were a number of reasons for the bubble in the Shanghai Stock Exchange, one of which was that the government tried to control the market, first putting limits on loans taken to invest in shares, and then, when stock values began dropping, encouraging people to buy back their shares to steady the market.”
The Hang Seng, however, did not inflate as much, and therefore did not fall as much either. This was in part because government intervention was not a factor, but also because foreign investors, who face fewer restrictions than in Shanghai, play a bigger role in the Hong Kong market.
As a result, the Hang Seng is trading at 8.2 times earnings, compared with 15.6 times in Shanghai (according to a Quartz report).
“I’d advise clients to invest in multi-fund portfolios in Hong Kong instead of a single fund in China,” said Porter. Multi-fund portfolios are safer, and more diverse, he said, and since the Hang Seng is already back to normal, it’s much easier to monitor closely. “There’s a definite opportunity to make a lot of profit there, and we continue to see profits, so there’s no need to panic.”
By Tulika Marathe
But does this mean all investment avenues into the world’s second-largest economy should now be avoided?
Some experts say Hong Kong’s Hang Seng Stock Exchange could be a more lucrative alternative for foreign investors.
“Hang Seng shares didn’t fall as much as Shanghai, and it (Hang Seng) is almost back to normal levels already,” said Keith Porter, chief investment officer at Altervest, Quebec. “There were a number of reasons for the bubble in the Shanghai Stock Exchange, one of which was that the government tried to control the market, first putting limits on loans taken to invest in shares, and then, when stock values began dropping, encouraging people to buy back their shares to steady the market.”
The Hang Seng, however, did not inflate as much, and therefore did not fall as much either. This was in part because government intervention was not a factor, but also because foreign investors, who face fewer restrictions than in Shanghai, play a bigger role in the Hong Kong market.
As a result, the Hang Seng is trading at 8.2 times earnings, compared with 15.6 times in Shanghai (according to a Quartz report).
“I’d advise clients to invest in multi-fund portfolios in Hong Kong instead of a single fund in China,” said Porter. Multi-fund portfolios are safer, and more diverse, he said, and since the Hang Seng is already back to normal, it’s much easier to monitor closely. “There’s a definite opportunity to make a lot of profit there, and we continue to see profits, so there’s no need to panic.”
By Tulika Marathe
