What is the current sentiment among investors in the A-share market?
The current trading volume is still very thin and investors are waiting for more conviction and definitive signals from Europe, a lot of which would not be expected to be positive. The signals from China will have a certain impact, but market sentiment will also be partly affected by news from Europe.
People would say the markets now are offering very cheap valuations — and in some cases valuations have come down 50% from their peak levels. But as an investor you’d want to come back to the market just before the rebound or at the beginning of the rebound. People are not convinced all the bad news has factored in the market yet.
From an issuer’s perspective, we see lots of inquiries from companies that are eager to raise funds. There are companies seeing consolidation opportunities in the current recession, and therefore seeking financing to support their aspirations. These companies could come from a wide range of sectors, including financial services, mining, construction material, metals and consumer companies.
China’s A-share market had one of the region’s worst performances once again in 2011. Is that making investors nervous to re-enter the market?
On market performance, I have a stronger faith in the A-share market now. The Hong Kong market is a lot more affected by what’s going on in the rest of the world, whereas the A-share market is more related to domestic monetary policy, with less direct connection to the outside world. If you believe domestic monetary policy will gradually become less tight, you would become more optimistic about the A-share market.
I believe Chinese stocks will remain a bright spot as an investment destination in 2012. There are not many better alternatives today where you can put your money to work. Investors have to come back to the market at some point.
Which sectors offer the best value?
The two main trends that will continue to drive economic growth in China are urbanisation and domestic consumption. Continued urbanisation will drive affordable housing, construction materials, infrastructure, transportation and the consumer sector to grow, while domestic consumption is about both goods and services. Tourism, education and healthcare, for example, are all part of the consumption plays. Technological innovation also plays a role in driving the economy.
What is your response to the clamour that Chinese IPOs tend to raise money for greed rather than need?
You need a willing buyer and a willing seller to strike a deal. You can’t only blame the willing seller. If the seller doesn’t fight for either the highest possible or the most sensible price for what he’s selling, he is not doing his job. For the buyer, he has to make a decision with discretion.
This is the same for any capital markets deal. However, if an issuer misuses the IPO proceeds then the blame would go to the issuer.
What are your thoughts on the short-selling of Chinese stocks?
We shouldn’t read too much into it or politicise it. It is only normal or even healthy for some hedge funds to be able to detect, attack and help weed out those so-called bad companies, no matter if they are from China or any other country. If these funds along the way breach certain trading rules, then they themselves should be punished. But that doesn’t mean those bad companies don’t deserve to be weeded out.
Why have the global investment banks failed to win a bigger slice of China’s booming IPO market, despite their best efforts?
The A-share markets are more of a domestic game. We now have a securities JV [joint venture] operating in China and are working very hard to get a slice of the market share.
Regulatory issues may not be the main barriers, but you need to plan ahead, hiring the right people to establish the right level of client relationships and build the right coverage model. That takes time. If you look at the early 1990s, for example, Hong Kong’s investment banking space was dominated by firms like Peregrine, for example. It has taken years for the global majors to obtain a dominant investment banking market share here in Hong Kong. It would be even tougher to establish a meaningful presence in the domestic Chinese market.
What’s your secret to being a successful investment banker?
Every company we have helped to go public is a company that I believe in and have faith in. You can’t serve a client whole-heartedly without that faith.
We always say the glass is half-full instead of half-empty — you need to have that kind of optimism to excel in this business.
