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Equity markets: Start of something big in China

Stock market reforms and restructuring portend further share price rises. There is money to be made, say fund managers, for those with patience and diligence.

Keep an eye on the recent jump in China’s domestic stock markets (up more than 10% year to date) for further signs of a longer-term re-rating, say fund managers. Long-time laggards because of structural problems, China’s local bourses in Shanghai and Shenzhen are undergoing a major overhaul, with listed companies restructuring their share capital to remove perceived stock overhangs, achieve fungibility and improve liquidity.

According to Frank Yao, chief investment officer of Hua An Fund Management, China’s second-largest domestic fund manager, based in Shanghai, the reforms are well on the way to a successful conclusion. The China Securities Regulatory Commission expects the process to be complete by the end of this year, says Yao.

The reforms are also spawning a move towards a more internationally recognizable investment management approach, leaving behind a trading mentality that has dogged China’s markets for so long.

“The [local] fund management industry is changing dramatically,” says Yao. “Before, if you had enough money, you could move stocks. Now you need to research: many funds are putting a serious investment process in place. That’s a sea change.”

Many companies are also developing new strategies, say fund managers, as the share reforms force management teams to confront their shareholders for the first time.

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