Betting on Chinese Stocks? Check Foreign Holdings, Goldman SaysBy , , and
Shares with more than 5% foreign ownership tend to outperform
Examples in Shenzhen include Hangzhou Hikvision and Midea
It’s worth looking for companies with relatively high foreign ownership when buying Chinese shares, according to Goldman Sachs Group Inc.
Onshore stocks that are more than 5 percent-held by foreign investors typically beat the overall market, Goldman’s chief China strategist Kinger Lau said. Examples include Hangzhou Hikvision Digital Technology Co. and Midea Group Co., which have surged 125 percent and 82 percent in the past 12 months as a trading link to Shenzhen boosted their foreign ownership to more than 9 percent. The Shenzhen Composite Index has dropped 9.7 percent since the link was opened on Dec. 5, 2016.
The trend is also apparent in Shanghai, where the benchmark index has eked out a 3.1 percent gain in 12 months. In that period, Shanghai International Airport Co., which is at least 30 percent held by foreigners, climbed 61 percent.
The Shanghai trading link with Hong Kong was opened in November 2014, giving foreigners unprecedented access to onshore shares while also opening offshore markets to mainland investors. Over the past year, around net $31 billion of mainland shares have been purchased via the Shenzhen and Shanghai links, according to Bloomberg calculations using data from the Hong Kong bourse.
“After the launch of stock connect, market participants could see what foreign investors have been buying,” said Amy Lin, a Shanghai-based analyst at Capital Securities Corp. “Local fund managers would get anxious when they saw good stocks getting bought up by foreign investors. This fueled a change in trading style and boosted these blue chip stocks.”