UBS research thinks the Mainland-HK Mutual Recognition of Funds (MRF) initiative is more favourable to the HK market than the other way around, as the demand is rising sharply for mainland investors to diversify wealth away from the A-share market of 28x trailing PER.
The research house estimated c.Rmb200bn of mainland money would go to the H-share market in the next 2-3 quarters. The MRF may not add too much capital flow in short-term given the necessary logistical preparation and marketing by HK funds. But it could accelerate the southbound fund flow given the clear intention of Chinese regulators to contain the A-share bubble. It reiterates its view that "HK A-shares" and reform-driven SOEs are primary beneficiaries in the H-share market.
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