Chapter 19 Differences between mainland and overseas stock markets

State-owned banks and other large state-owned enterprises are listed at home and abroad at the same time. Is it an inevitable trend that the A-share price will move closer to the H-share price? What problems does the A-share secondary market's premium to H-shares reflect? ◎Reporter: The central government has decided to allow state-owned banks and other large state-owned enterprises to list on the A-share market in the next few years. Does this mean that there is a new clarity on the development of the A-share market, or a new positioning? Chen Zhiwu: Good companies such as PetroChina, CNOOC, and Sinopec are not listed on the domestic stock market but listed overseas. It is logically unreasonable.If the four major banks listed in the future are listed at home and abroad at the same time, it will not only provide foreign investors with investment opportunities, but also allow Chinese investors to obtain investment opportunities.This new development is a good thing.

◎Reporter: If these large-cap stocks are listed domestically, can the domestic market accommodate them? Chen Zhiwu: Companies listed in the two places can adjust their respective issuance ratios according to the needs of domestic and overseas markets.At the beginning, the A-share market may be overly sensitive to accepting large-cap stocks. If the domestic issuance ratio is originally set at 30%, it can be considered to reduce it to 20% accordingly, and gradually proceed. ◎Reporter: There is a view that in order to solve the problem of non-performing assets in banks, the management may take the risk of damaging the short-term interests of the securities market, or even at the so-called cost of "sacrificing the interests of a generation of securities market investors".

Chen Zhiwu: This view may also be correct, but I think market participants should not be surprised.First, institutional investors and stockholders in mainland China are very familiar with this market. They used to be proud that the A-share market is a policy market. They know that there are many human factors in this stock market.That being the case, of course you can't expect that every human decision-making will only benefit investors, and you have to suffer both good and bad.In other words, these should have been expected when you decided to join A-share trading.Since it was expected, we should not talk about sacrifice or not sacrifice today.Second, the state has used USD 45 billion in foreign exchange reserves to inject capital into Bank of China and China Construction Bank. In fact, it transferred the wealth of some ordinary people for the listing of the four major state-owned banks and subsidized future investors of these bank stocks.The so-called listing of the four major banks is "sacrificing the interests of investors in the securities market", which is not entirely true.Third, the listing of the four major banks will lower the stock price. If such bad expectations have been formed in advance, then such bad expectations may have been reflected in the current stock price today. This is a backward-looking situation.Looking forward, according to the experience of the United States, once such bad and expected events do happen, it is often the time for the stock market to rise.The reason is very simple, once the dark clouds and heavy rain pass, you can only see sunny days.

◎Reporter: Is it inevitable that the share price of A shares will move closer to that of H shares before the share split problem in the A-share market is fundamentally resolved? Chen Zhiwu: A share price and H share price will inevitably move closer.From the perspective of international practice, it turns out that many countries (such as Switzerland, Sweden, South Korea, and Mexico) have stocks that locals can buy but foreigners cannot buy, as well as stocks that foreigners can buy, and there are stock categories based on investor identities. .However, these countries abolished this distinction in the early 1990s, allowing different types of stocks to be merged, so that the same company's stocks truly have the same shares and the same rights.With the process of marketization in China, the price difference between A shares and H shares, A shares and B shares, tradable shares and non-tradable shares will become smaller and smaller.

But currently there are three biggest factors hindering this approach: first, A shares cannot be shorted; second, foreign exchange is not freely convertible, and arbitrage transactions between A shares and H shares cannot be carried out; third, investors of A shares and H shares are different groups.At present, except for QFII, A-share investors can only be mainland investors, while H-share investors are Hong Kong and overseas investors. The intersection of the two investment groups is not large, and they are willing to pay different prices for the same stock.Even if A shares and H shares are getting closer and closer, the price difference between A shares and H shares will still exist.

◎Reporter: How big is the impact of QDII? Chen Zhiwu: First of all, the negative impact of QDII on A shares is less than the positive impact on H shares. QDII will increase the number of investors in H shares, and will help push up the stock price of H shares, thus promoting the closeness of A shares and H shares. The negative impact of QDII on A shares is limited.Because the money that China is willing to invest in the stock market is not a constant, it will not be the case of only 100 yuan, either investing in A shares or H shares.The funds willing to invest in the stock market are a function of factors such as the degree of development of the stock market itself, the credibility of the stock market itself, and the type and quality of investment varieties.As long as China's securities market is well developed and investor confidence is improved, the supply of capital will increase significantly.Only when the capital supply remains unchanged, QDII will indeed have an impact on A shares.But on the other hand, don't forget the size of China's savings.It is not an either-or relationship between A-shares and H-shares, and between domestic and overseas stock markets.

Secondly, QDII will exert pressure on China's current capital market system, promote the improvement of the system and the government's progress in property rights protection, otherwise China will face the pressure of capital outflow. Again, the main body of investment in QDII is insurance companies.In comparison, foreign-funded insurance companies have much more investment varieties.Not promoting QDII is not conducive to the development of China's insurance industry, and will tie the hands and feet of China's insurance industry in the competition. Finally, the introduction of QDII will help enrich the investment portfolios of mainland investors and benefit the common people.

◎Reporter: Assuming that PetroChina issues A shares in the next six months, is there a premium in the secondary market positioning of its A shares compared to its H shares?What problem did it reflect? Chen Zhiwu: There will be a premium.Even if the investors in the A-share market and the H-share market use the same pricing method, the stock price will be different due to the different information content they understand about the company, different exchange rules, cultural and geographical differences, etc. The number of investors in the A-share market is much larger than that in the H-share market, so the pricing tends to be higher.

◎Reporter: The Hong Kong market is a market with a relatively low positioning in the global capital market, and it is said to be the bottom one.Why is it so positioned? Chen Zhiwu: The price-earnings ratio of the Hong Kong market is relatively low. It is not an artificial arrangement. It is formed by market investors through buying and selling behaviors, and it also includes stock market expectations for potential votes.In previous years, Hong Kong's price-to-earnings ratio was similar to New York's.But at present, Hong Kong's price-to-earnings ratio is lower than that of New York.One of the important reasons is that there are more and more mainland companies listed in Hong Kong. Since mainland companies cannot reassure international investors in terms of information credibility and transparency, information quantity and quality, etc., mainland listed companies In this case, the price-earnings ratio is generally set relatively low.This will naturally affect the overall price-earnings ratio of the Hong Kong market.

Many companies in developed countries such as Western Europe and Japan are listed both at home and in New York, and their price-earnings ratio positioning in New York is generally about 20% to 30% higher than that in China.However, companies in emerging markets such as China and Indonesia are listed in both China and New York, and their price-earnings ratios listed in New York are generally lower than those listed in China.Because when international investors consider whether a company's stock price is reasonable, the factor where the company's product sales market is is also very important.If its sales market is only in China, foreign investors will not be able to understand its value because they cannot see its products, so it is easier to underestimate the stocks of such listed companies. For example, the price-earnings ratio of China Eastern Airlines is quite low in New York. The quantity is also extremely low.At present, the soft power, image, and information credibility of Chinese enterprises are not optimistic.In contrast, the products of many companies in Western Europe and Japan have a large market in the United States and are household names.It is not surprising that these foreign companies can get high price-earnings ratios when they list in the United States.The more a company sells its products in the US, the more it should consider listing in the US; and vice versa.