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Wednesday, July 27, 2016, 18:05

UBS expects H shares to surge up to 10% in H2

By Duan Ting

HONG KONG - The Swiss global financial services provider UBS upgraded its expectation on H shares performance in the second half of the year on Wednesday.

Lu Wenjie, H-share strategist at UBS Securities, said on a media conference call earlier that the Hong Kong equity market is expected to rise 5 to 10 percent in the second half of the year and 3 percent for the whole year due to the strong capital outflow from the mainland and the active overseas acquisitions of mainland Chinese enterprises.

The capital flow from large mainland financial institutions and insurance companies to H shares this year – caused by the depreciation of the renminbi – is quite steady and sustainable. The flow was especially large during the end of June and the beginning of July. Lu expects the flow to continue in the coming years.

Driven by the Belt and Road (B&R) strategy and Go Out policy, overseas acquisitions of mainland Chinese enterprises are quite active. The competitive quality and price of mainland Chinese products and the relatively low financing cost are beneficial to the overseas acquisitions. According to Lu, in the coming three to five years, international Chinese companies are likely to be generated.

Recently, international investors expecting the global central banks will continue to carry out loose monetary policy have been buying more emerging market shares, especially in India, Thailand and Indonesia, as their currencies are relatively stable and political risk is relatively rare.

However, Lu thinks that investment from international investors is much less than that of mainland investors.

The unclear future development of State-owned enterprises reform and the sluggish profits of enterprises this year, especially large mainland financial institutions, are concerns dragging the market down, Lu added.

As for stocks, Lu said individual investors can pay attention to companies with stable dividend payout and medium- and small-sized companies with international business development focus.

The benchmark Hang Seng Composite Index (HSCI) increased 0.4 percent to 22,218.99 points on Wednesday. UBS expects the HSCI and the Hang Seng China Enterprises Index (HSCEI) to increase 9,800 and 61 points, respectively.

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