With juicy net profits, Shenzhen-listed companies are likely to attract more international investors as soon as the Shenzhen-Hong Kong Stock Connect program takes off. Brent Lewin / Bloomberg

Sound 2014 profits will drive second stocks cross-trading link, say experts

The upcoming Shenzhen-Hong Kong Stock Connect - due to launched in the second half of this year - is expected to see Hong Kong and foreign investors pouring their investments into Shenzhen after being encouraged by the performance of companies listed there, analysts say.

The forecast follows a report by the Shenzhen Stock Exchange (SZSE) on Monday saying that, according to the annual reports of 1,671 Shenzhen-listed enterprises, 92.2 percent of them had recorded profits last year, including 367 companies which saw their profits jump by more than 50 percent, compared with just 242 firms a year ago.

Shenzhen-listed companies had a total net profit of 378.2 billion yuan ($60.9 billion) in 2014 - an increase of 11.7 percent over the previous year. Total revenue last year surged by 8.43 percent to 6.3 trillion yuan from a year ago.

The SZSE Component Index climbed 0.28 percent to close at 14,860.53 on Monday.

Yang Delong, chief strategy analyst at China Southern Asset Management Co Ltd, told China Daily that an 11.7-percent profit growth for Shenzhen companies is encouraging enough for investors.

The SZSE report shows that Shenzhen-listed companies generally performed well in 2014, considering that the country's GDP had not expanded at a rapid pace (7.4 percent).

Yang said both Hong Kong and overseas investors have higher expectations of the Shenzhen Hong Kong Stock Connect - the second stocks cross-trading link between the mainland and the SAR.

The high performance of Shenzhen-listed firms has already boosted the confidence of domestic inventors themselves, with the SZSE Component Index having soared by 35 percent since early this year.

Yang said he expected the new stocks link to lift the SZSE's daily turnover substantially.

Yuan Ji, chief research officer at Guangzheng Hang Seng Research Co, said Hong Kong investors have gained experience from the Shanghai-Hong Kong Stock Connect, and they should be well prepared for the Shenzhen-Hong Kong program.

"Investors will learn from the smooth operation of the Shanghai-Hong Kong Stock Connect program I think they will be interested in the companies of emerging industries as well as small- to medium-sized firms with great potentials," said Yuan.

Unlike the Shanghai Stock Exchange, where the listed companies are mostly State-owned and from the traditional financial, industrial and energy sectors, those listed in the Shenzhen bourse represent a budding private sector - the technology, telecoms, consumer goods and medical fields, he said.

Yuan pointed out that the significance of the Shenzhen-Hong Kong stocks link is more than just boosting the Shenzhen market. It will, for the first time, connect the Shenzhen market with those overseas and help the SZSE upgrade its market mechanism.

sophiehe@chinadailyhk.com

(HK Edition 05/05/2015 page9)