The China H shares market will continue to benefit from structural changes and government reforms, says BlackRock.
The H shares market, which are the shares of companies based in mainland China but traded on the Hong Kong Stock exchange, are poised to increase in value as a result of structural reform currently under way.
BlackRock head of China equities, Helen Zhu, said that “we continue to look out for very clear structural changes that may bring higher return opportunity for different sectors and different companies”.
“What we would like to see is actually deeper reforms that improve the outlook for the market in terms of sustainability of growth over the longer term,” Ms Zhu said.
Ms Zhu explained that Chinese policymakers are attempting to implement reforms that are positive for the long term even if that means some short-term pain.
“Over the medium- to longer-term the intention is not to maximise the pace of growth, but rather to make more strides in terms of enhancing the composition of growth and therefore enhancing the sustainability of growth,” she said.
While a lot of hype has surrounded the China A shares market recently due to its outperformance –particularly in the fourth quarter of last year and the year to date – the market has become overvalued, Ms Zhu said.
Ms Zhu pointed out that at BlackRock, H shares are now preferred over A shares.
“On a relative basis we do believe that the H share market is such a large laggard that this is where the relative value is,” she said.
“Our preferences are across a large variety of different types of sectors.”
According to Ms Zhu, on the new economy side, particularly health care, there are now more choices.
“And we do see this as a tremendous organic growth opportunity for China at reasonable valuation,” she said.
Moreover, Ms Zhu said opportunities still exist within the property sector as the fundamentals have improved over the past three months due to policy loosening and improved supply/demand dynamics.
Ms Zhu concluded that as both the A shares and H shares markets become further interconnected, the H share market will benefit.