China stocks: cross-border expansion widens everyone’s horizons

Amid such distractions as a potential US banking crisis, it is easy to miss other noteworthy news. This includes a big expansion of cross-border trading in Chinese stocks. The main Chinese exchanges of Shanghai, Shenzhen and Hong Kong have expanded their programmes by more than 1,000 stocks, the largest increase ever.

This means shares of well-known foreign companies including French skincare company L’Occitane, UK-listed savings group Prudential and US luggage maker Samsonite became accessible to mainland investors starting on Monday. Yet, the biggest beneficiaries should be Chinese companies.

The expansion of Stock Connect programmes of almost 40 per cent brings the total of so-called A shares listed on the Shanghai or Shenzhen stock exchanges to more than 3,600.

This significantly improves access and liquidity for foreign companies with a primary listing in Hong Kong. Foreign companies listed in the city hoping for access to the deep pool of mainland retail investors. These hold more than $3.5tn in their stock trading accounts.

But mainland companies may benefit more from investment coming from Hong Kong of both the retail and institutional varieties. The benchmark CSI 300 index is down more than 30 per cent from its 2021 peak and trades at a reasonable 14 times forward earnings.

Shares in struggling local real estate developers have fallen yet further, more than 50 per cent, in the past year. Shares of Country Garden, the largest of these, trade at just 3 times forward earnings.

A reopening of the Chinese economy at the end of last year has not yet triggered the stock market rally analysts had expected. Weak local sentiment could be further dented by the collapse of Silicon Valley Bank in the US. This despite the fact that SVB’s Chinese joint venture with Shanghai Pudong Development Bank has an independent balance sheet.

When there are clearer signs the local market has hit rock bottom, expanded Stock Connect programmes should help reinvigorate valuations.