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Emerging Asia equity star eyes ‘through train’ arbitrage plays

Emerging Asia equity star eyes ‘through train’ arbitrage plays

The introduction of the Hong Kong-Shanghai Stock Connect will provide attractive arbitrage opportunities for those quickest to respond, according to Citywire A-rated Jian Shi Cortesi.

The opening up of trading between the stock markets – known as the ‘through train’ – is set to come into effect on November 17.

Cortesi, who oversees two Asian equity funds at Swiss & Global Asset Management, said the launch of the agreement marks a landmark step for China’s internationalisation plans and presents an opportunity for investors.

‘The Shanghai-Hong Kong Stock Connect presents an arbitrage opportunity for quick footed investors to capitalise on companies that trade in both markets,’ she said.

‘We could see a downward pressure on larger companies stock prices in Hong-Kong, currently trading at a discount to Shanghai, depending on how quickly this gap narrows.’

Cortesi, who saw co-manager Vincent Lagger step down at the end of October, said she would be assessing the potential to add select bets in the China A-Shares market in her Julius Baer EF Asia Focus fund.

‘The through-train will also open the door for international investors to access a lot of good quality consumer and healthcare companies historically only available in China.’

‘Companies of interest include the popular Chinese rice wine producer, Kweichow Moutai Company, automobile manufacturer SAIC Motor Corp, and Tasly Pharmaceuticals, a manufacturer of traditional Chinese medicine, which currently don’t trade in Hong Kong.’

Cortesi said, while the scheme has been heralded as a ‘major step’ for China, it is not guaranteed to succeed and turn the country into an open an attractive destination for equity investors.

‘The speed with which international investors become comfortable buying Chinese stocks will be a decisive factor in the success of the programme,’ the Zurich-based manager said.

‘Overseas investors will require good local knowledge to effectively trade this market. Not only is the process of trading Shanghai listed stocks very different from the norm, but barriers also exist in terms of researching and accessing information of companies in Asian markets.’

The Julius Baer EF Asia Focus USD returned 37.4% over the three years to the end of September 2014. This is while the MSCI EM (Emerging Markets) TR USD, rose 24.4% over the same period.

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