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[HONG KONG] After months of anticipation, the opening day of Shenzhen's exchange link with Hong Kong has finally arrived.
The programme will give foreign investors direct access to more than 800 stocks in China's southern financial hub, while adding more than 100 smaller Hong Kong equities to the potential buy lists of mainland traders.
It's all part of China's effort to internationalise its currency, expand its citizens' investment options and get mainland shares into MSCI Inc.'s global indexes. As trading begins, here's a sampling of analysts' top picks.
Some parts of China's economy are poorly represented by shares traded in Hong Kong and other international markets. Companies in Shenzhen that fill the gaps are likely to lure foreign money managers, according to Credit Suisse Group AG.
The Shenzhen Composite Index dropped 0.2 per cent at 10.09am, while the Hang Seng Index added 0.1 per cent.
Hangzhou Hikvision Digital Technology gives investors exposure to China's growing surveillance market, according to HSBC.
Wangsu Science & Technology's cloud computing business is likely to beat expectations, HSBC said. Analysts at UBS, Credit Suisse and Goldman Sachs are also among those who like the stock.
Wuliangye Yibin, a distiller, has positive recommendations at HSBC, Credit Suisse, Citigroup and Goldman Sachs.
NEW ECONOMY BETS
Shenzhen is often called China's Nasdaq because it's the favoured destination of so-called new economy companies that tap into the country's fast-growing technology, consumer and health-care industries.
Shenzhen Inovance Technology has gained market share in automation products and that's likely to continue in 2017, said HSBC. Citigroup also recommends the stock.
Luxshare Precision Industry should benefit from a new speaker-box business and the rising use of so-called Type C connectors for smartphones in China, said Macquarie analysts.
HONG KONG SMALL-CAPS
The Shenzhen connect will make it easier for mainland investors to access small-cap Hong Kong stocks with market values of at least HK$5 billion (S$919 million). The Hang Seng Composite Small Cap Index has dropped 4.4 per cent this year, versus a 3 per cent gain for the large-cap Hang Seng Index.
Li Ning is favoured by analysts at Macquarie, UBS and Credit Suisse, the latter of whom said it has the highest earnings outlook among sportswear makers.
Yuzhou Properties 's high dividend yield could appeal to mainland investors, according to analysts at Macquarie.
Angang Steel should benefit from China's supply-side reorganisation aimed at cutting redundant capacity, said Goldman Sachs.
Dual-listed companies trade at different valuations in the two cities, with analysts saying the link could help close the gap (though similar hopes at the opening of the Shanghai link haven't been fulfilled.)
Among 17 stocks listed in both in Shenzhen and Hong Kong, 16 trade at a cheaper valuation in the latter.
Zhejiang Shibao, an automobile steering parts maker, trades at a 75 per cent discount in Hong Kong, while Shandong Molong Petroleum Machinery Co is 73 per cent cheaper.
Weichai Power, valued at a 5 per cent premium in Hong Kong, is the sole exception.
HONG KONG'S FINANCIALS
Insurance firms, brokerages and banks in Hong Kong are seen as potential beneficiaries of the second link if the programme helps spur trading.
Financial services firms account for 11 per cent of total market value of the Hang Seng's small- and mid-cap indexes, the third-biggest sector behind machinery and real estate, according to HSBC. Among Citigroup's picks are Haitong Securities, Bank of China and China Life Insurance.