Li Daxiao: Shanghai And Hong Kong Have Introduced "Live Water" Into The A Share Market.

Today, the China Securities Regulatory Commission and the Hongkong Securities Regulatory Commission issued a joint announcement that the Shanghai and Hong Kong stock exchanges will start in November 17, 2014. Li Daxiao, director of the British Securities Institute, said that the Shanghai and Hong Kong through this innovative mechanism can not only bring incremental funding to the A share market, but also help improve some structural problems in the market, improve the investment environment of the market, and lay the foundation for the next long term bull market of A shares.

Li Daxiao said that in the context of China's capital account not yet fully open, foreign investors want to invest in A shares, which are now done mainly through the QFII and RQFII approvals.

As of September 2014, QFII totaled about 62 billion 200 million US dollars, and the total amount of RQFII was 288 billion 300 million yuan.

Shanghai and Hong Kong through this innovative mechanism will expand the channels for overseas investors to invest in the mainland stock market on the basis of the institutional arrangements of the original qualified foreign investors, and form an effective supplement, of which the total amount of Shanghai Stock Exchange is 300 billion yuan.

At present, the valuation of the A share market is low in the world, especially in the Shanghai market represented by large blue chips. In the Shanghai and Hong Kong Tong pilot, the investment target of Shanghai Stock Exchange is mainly composed of good quality Shanghai 180 Index and Shanghai Stock Index 380 constituent stocks. Whether from the vertical historical comparison or from the horizontal International Comparison Perspective, these blue chips all have valuation advantages, which is expected to attract more international capital to flow into the A share market through Shanghai and Hong Kong, and inject new vitality into the sustainable development of the market.

Li Daxiao said that in the past, irrational investment behaviors such as "three speculation" and "three high" of new shares in the A share market were mainly due to the "scarcity" and "shell resources" value of stock generated by stock supply constraints. The existence of "resource" value made the market value of some small and medium capitalization stocks significantly higher than their intrinsic value.

Shanghai and Hong Kong through this institutional arrangement is equivalent to not only issuing new shares financing, but also effectively increasing the supply of shares, expanding the scope of investment of domestic investors. In the past, some new stocks, pseudo growth stocks, junk stocks and stock issues that had irrational speculation due to limited stock supply would return to a reasonable value.

At the same time, underestimating the long-term investment value of blue chips will be easier to get the attention and favor of domestic and foreign investors, and the valuation is expected to be repaired.

Therefore,

The introduction of A will play a positive role in changing the status quo of the imbalance in the valuation structure of A shares, and a reasonable valuation structure can make the capital market better play the effectiveness of resource allocation, which is the basis for the long-term healthy development of the stock market and improving the rate of return on investment.

At present, the A share market is dominated by individual investors. By the end of 2013, institutional investors accounted for only about 1/10 of the market value of A shares, while the Hongkong market was dominated by institutional investors. In the financial year 2012/13, about 60% of the volume of Hong Kong stock exchange was completed by institutional investors.

Meanwhile, the view of institutional investors in Hongkong market is more internationalized, and its investment philosophy, pricing system and valuation system are more mature and perfect. Compared with mainland investors, the investment quality and dividend situation of listed companies are more valued, and investment behavior is more rational.

Therefore, the interconnection and exchange between Shanghai and Hong Kong stock market will help to optimize the structure of investors in A shares, enhance the voice of institutional investors, guide the investment philosophy and valuation system of mainland capital market to integrate with international mature market; and the price discovery function of the two markets will effectively inhibit the short-term irrational trading behavior of A share market, and promote the rational and long-term investment behavior of the A share market, which is conducive to the long-term stable and orderly development of the market.

Li Daxiao believes that, compared to the A share market, the Hongkong market is more perfect and mature in terms of regulation and system rules.

The regulatory efficiency, trading system, legal environment and supporting rules of the A share market will be further improved and optimized, so as to create more standardized and market-oriented investment environment for investors and better protect the interests of investors.

Confidence in the A share market will enhance the attractiveness of the A share market and provide a system guarantee for the healthy development of the A share market.

On the whole, Shanghai and Hong Kong pass as an important part of China's capital market opening to the outside world, broadening the investment channels of investors and the sources of the two markets in Shanghai and Hong Kong, and will also have a positive impact on the solution of many structural problems in the capital market, and guide regulators to optimize the system in a more favorable direction for investors.

Shanghai and Hong Kong through this innovative institutional arrangement will promote more healthy development of the mainland capital market and lay the foundation for opening up a new era of long-term A bull market.