Connect and Beyond

SZ-HK Connect and China Outlook

Alvin Li
CSOP Asset Management

Agenda
1.

SZ-HK Connect implications, market reactions and China Q4 outlook

2.

Overview of Shenzhen ChiNext board the fastest-growing board of

Shenzhen

3.

Connect-related A-share ETF investments

Shenzhen Hong Kong Connect

SZ-HK Connect: Brief Introduction

Market Comparison

Northbound (to SSE and SZSE)

Daily Quota

RMB 13bn

Southbound (to HKEx)

Trading Currency

RMB 10.5bn
Institutional investors ( no restrictions on account balance);
No restrictions (local / foreign, retail / institutional accepted)
Retail investors with account balance > RMB 500,000
318 Names in Hong Kong ( US$2.5tn mkt cap, US$4.2bn
567 Names in Shanghai (US$3.5tn mkt cap, US$21bn ADT)
ADT)

SSE 180/380 index

Hang Seng Composite Large/MidCap Indices

Dual-listed A & H shares in Shanghai

Dual-listed names in SSE (A-share) and HKEx (HTo add 673 stocks in Shenzhen (US$1.9tn mkt cap, US$25bn
share)
ADT)
To
add
120 stocks in Shenzhen (US$227bn mkt cap,

Constituents of indexes below with RMB6bn or above#

US$0.2bn ADT)
1.
SZSE Component Index

Constituents with HK$5bn or more market cap# in

2.
SZSE Small / Mid Innovation Index
Hang Seng Composite SmallCap (HSSI Index in
3.
Dual listed names in SZSE (A-share) and HKEx (H-share)
Bloomberg)
*ChiNext stocks are only available to institutional professional

Dual listed names in SZSE (A-share) and HKEx (Hinvestors under HK related regulations in the beginning of the
launch until further notice
share)

Pre-opening Session
(09:00 09:30)

Opening Call Auction

(09:15 09:25)

Morning Continuous Auction (09:30 11:30)

Morning Session (09:30 12:00)

Afternoon Session (13:00 15:00)

Afternoon Continuous Auction (13:00 15:00)

At Auction (Pre-opening)
Limit only (no amends, must cancel and re-enter)

Enhanced Limit (Continuous Trading)

No amends, must cancel & re-enter

RMB for trading & settlement
HKD to trade, RMB to settle

Pre-trade Checks

Broker level checks on Sells (based on T - 1 holdings)

Eligible Investors

Investable World

Market Hours

Order Types

Individual level checks on Buys (money) and Sells (stock)

Intra-day Trading
(block not allowed / manual not supported)

Block / Manual Trades

Settlement Cycle

T-day (stock), T+1 (money)

(block not allowed / manual not supported)

T+2 (DVP)

Agreement has been reached that Exchange Traded Funds should be included in Shenzhen-Hong Kong Connect,
which is expected to be achieved next year.

HK ETF Funds Flow

Outflow from big-cap ETFs and inflow into small cap ETFs
Since August, Big-cap ETFs, especially H-share ETFs, have seen redemption pressure
On the contrary, small-cap selection especially Shenzhen ChiNext ETFs have seen decent creation
as some investors bet on Shenzhen outperformance

ETF Funds Flow from August to 20th Sep 2016:

Big-cap ETF Funds Flow

Small-cap ETF Funds Flow

25,000,000

0
-50,000,000

20,000,000

-100,000,000
15,000,000
-150,000,000
10,000,000

-200,000,000
-250,000,000

5,000,000

-300,000,000
0
-350,000,000

ChiNext ETF - 3147

CSI 300 ETF FTSE China FTSE China
A50 ETF
A50 ETF
(synthetic) (physical)

Source: Bloomberg, as of 20 Sep, 2016.

HSI ETF

HSCEI ETF
-5,000,000

Hang Seng Small Cap ETF

Access to New Economy in China

The Shenzhen Stock Exchange

Shenzhen vs Shanghai

Shenzhen Stock Exchange Multi-layer structure

Main board: Traditional Blue Chips

74 companies were listed in Fortune 500

No. of listed companies: 478

Company of China in 2015

Total market cap: USD 973 billion

49 listed companies issued B-shares

Average market cap: USD 2.1 billion

SME: New main board of Shenzhen

No. of listed companies: 778
Total market cap: USD 1.3 trillion
Average market cap: USD 1.7 billion

405 companies rank top three in their niche

industries in domestic market penetration
301 companies rank first in their niche
industries in domestic market penetration
110 companies rank top three in their niche
industries in global market penetration

ChiNext: Chinas Next, Chinas NASDAQ

No. of listed companies: 508

91% companies are certified high-tech

Total market cap: USD 730 billion

enterprises at the national level

Average market cap: USD 1.4 billion

72% are in strategic emerging industries

5% R&D intensity

Shenzhen Stock Exchange Listings

Market Cap and No. of Listed Companies on Shenzhen Stock Exchange
Market Cap (RMB bn)

Main Board

SME Board

ChiNext

900

25,000

800
20,000

700
600

15,000
500
400
10,000
300
200

5,000

100
0

0
2004

2005

Source: SZSE, as of Sep 19 2016

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Shenzhen Stock Exchange Listing Requirements

Main Board and SME Board

1.
Net profit

2.

1.
Revenue/
Cash Flow

2.

Positive net profit in the last 3

consecutive years; and
Aggregate value is no less than
RMB 30 million (USD 4.6 million)
Accumulated revenue in past 3
years no less than RMB 300
million (USD 45.6 million), or
Accumulative net operating cash
flow no less than RMB 50 million
(USD 7.6 million)

Source: SZSE, as of Sep 19 2016

ChiNext Criteria 1
1.
2.

Positive net profit in the past

2 consecutive years; and
Accumulated profit no less
than RMB 10 million (USD 1.5
million)

N.A.

ChiNext Criteria 2

Positive net profit in last

one year

Positive revenue in last

one year and no less
than RMB 50 million
(USD 7.6 million)

Regulations on Suspensions
On 27th May 2016, Shanghai and Shenzhen Exchanges jointly published a new memorandum
regarding listed companies suspension and resumption
In principle, companies are not expected to suspend for longer than 3 months
Suspension Reason
Not related to major asset purchase

Suspension time
(no more than)
10 days

Related to major asset purchase

1 months

Major asset restructuring

3 months

After 3 months, if any company wants to continue suspension, they are required to hold a
shareholders meeting and vote for the final decision

A-share Indices Comparison

From GICS sector perspective, the ChiNext Index consists of the most young-industry
constituents among all the A-share indices
100%
80%

Relatively
Young Industry

78%
64%

57%

60%
Information Technology

40%

22%

22%

20%

Health Care

11%

Consumer Discretionary
Consumer Staples

0%

Telecommunication Services
Financials

-20%

Energy
-40%

Relatively
Mature Industry

Utilities
Materials

-60%

Industrials
-80%
-100%

ChiNext SME Index SZ Comp SH Comp

Index
Index
Index
Source: Bloomberg, as of 31st Aug 2016

CSI 300

A50

Shenzhen Board: Market Features

China 7 Strategic Emerging Industries (SEIs);
The State Council of China declared a policy document in 2010 the Decision on Accelerating the Development of Strategic Emerging Industries.

There are more than 560 companies from the7 Strategic Emerging Industries; China 7 Strategic Emerging
Industries (SEIs): Energy efficient and environmental technologies, Next generation information technology,
Biotechnology, Advanced equipment manufacture, New energy, New materials, New-energy vehicles
The 7 emerging industries account for more than 67% market value of ChiNext boardon SME board, the 7
emerging industries account for more than 37%
The 7 Strategic Emerging Industries

Private Enterprise Proportion

Quantity

Quantity
Weighting

Market Value
Weighting

Shanghai

364

35.3%

16.8%

Shenzhen whole
market

1187

71.5%

62.1%

Shenzhen SME

622

83.4%

78.3%

Shenzhen
ChiNext

408

91.5%

93.8%

Board
201
267

85

228
Shanghia market

Shenzhen Main Board

SZ SME Board

SZ ChiNext Board

ChiNext Index at a Closer Look

ChiNext Index (Bloomberg Code: SZ399006 Index)
46% - Information Technology

32% Software & Services

13% Technology Hardware and Equipment

18% - Industrials

8% Machinery, 5% Electrical Equipment

New Industrials Origin Water (water treatment),

Siasun Robots (Robots, Production line automation)

No Construction; No Transportation

13% - Health Care

7% Pharmaceuticals, Biotechnology

6% Health Care Equipment & Service

10% - Consumer Discretionary

7% Media

*No Financials, No Real Estate, No Energy, No Utility

Source: Bloomberg, as of 31st Aug 2016

ChiNext Index at a Closer Look

ChiNext Index (Bloomberg Code: SZ399006 Index)
Stock Code

ChiNext Constituent Name

Market Cap
(mm RMB)

Weighting

300104.SZ

LeShi Internet Information

91,494

4.8%

300059.SZ

East Money Information

71,665

3.8%

300017.SZ

Shanghai Wangsu Science

54,467

3.1%

300070.SZ

Beijing OriginWater Technology

58,657

2.7%

300072.SZ

Beijing Environmental

51,138

2.6%

300024.SZ

Siasun Robot & Automation

37,976

2.5%

300027.SZ

Huayi Brothers Media Corp

35,931

1.9%

300408.SZ

Chaozhou Three-circle Group

28,679

1.9%

300124.SZ

Shenzhen Inovance Technology

30,765

1.8%

300168.SZ

Wonders Information Company

24,159

1.6%

Total

26.6%

Free float adjusted market capitalization weighted index; price return, denominated in RMB
Designed to represent the performance of the top 100 A-Share companies listed on the ChiNext board
Compiled and published by Shenzhen Securities Information Co., Ltd. (SSICL or the Index Provider)
The Index covers about 50% of the total market value with good representatives of the entire ChiNext market

Source: Bloomberg, as of 31st Aug 2016

ChiNext Main Constituent

LeShi

Market Cap: 92,148mm RMB

2015 Profit Growth

57.4%

2015 Revenue Growth

2014 Profit Growth

91.1%

2014 Revenue Growth

42.8%

189.6%

Film and TV Series dominant, with multiple content covered online streaming site
Major channelsLetv SeriesLetv TVLetv SportsLetv Made
Featured channelsLetv MegaLetv EntertainmentLetv VarietyLetv MusicLetv FashionLetv Cars
Only public listed online streaming site in Chinafirst online streaming site that made an initial public offering
worldwide

50 million daily active users, 350 million monthly users

Platform+Content+Terminal+ApplicationSystem
- Platform: cloud video and retailer platform
- Content: content production and operation
- Terminal: hardware, LetvUI system
- Application: Letv Store, video search, browser

ChiNext Main Constituent

East Money
2015 Profit Growth
1,015%

Market Cap: 68,141mm RMB

2015 Revenue Growth

389.7%

2014 Profit Growth

3,213%

2014 Revenue Growth

143%

Most influential and visited financial website in China

The biggest mutual fund distribution platform in China: 740 billion RMB turnover in 2015
93% of retail investors in China rely on East Money for market information and investment
RMB 1.8 billion net profit in 2015; 62% profit margin
Content includes finance, stocks, mutual funds, futures, bonds, foreign exchange, banking,
insurance etc. financial related information please get

ChiNext Main Constituent

Beijing OriginWater
2015 Profit Growth
45%

2015 Revenue Growth

51%

Market Cap: 57bn RMB

2014 Profit Growth

2014 Revenue Growth

13%

10%

Chinas leading water purifying company

One of the largest membrane companies in the world
More than 70% market share in Chinas membrane water purifying business
RMB 400,000 initial investment in 2001; now total net assets are worth RMB 14bn

ChiNext Main Constituent

Huayi Brothers Media

2015 Profit Growth
8.9%

2015 Revenue Growth

62.1%

Market Cap: 34,538mm RMB

2014 Profit Growth
34.8%

2014 Revenue Growth

19.1%

Reputable Entertainment Group in mainland China

Massive production scale and cost with most famous actors made the way for HBCs success in the industry
Complete media system from screen scrip, production, marketing, to theater
Have the most contracted actors in China, account for half of the first tier actors

Index Features
High Growth and High Valuation
ChiNext is the fastest growing board in the entire China A-share market
PE seems high. But it comes with highest growing rate
Backing up by high growth, ChiNexts PEG is lower than the entire A-share market
The better a constituents performance, the more contribution to the index

Weighting Ranking

Total Weighting (%)

Average Profit
Growth
2015

Average Profit
Growth
2014

1-10
11-20
21-50
51-80
81-100

29.9%
14.3%
28.3%
19.3%
8.1%

107.4%
43.9%
15.3%
10.6%
-23.6%

36.6%
18.9%
51.5%
37.6%
45.0%

2015 Profit Growth

2014 Profit Growth

PE

ChiNext Index

42.6%

37.7%

46x

SME Index

40.0%

28.0%

30x

CSI 300 Index

-5.4%

17.3%

15x

A50 Index

-9.0%

18.3%

9x

Better Growth Translates to Better Performance

ChiNext Index (SZ399006 Index) has outperformed other A-share indices (SME index,
CSI 300 index etc.) in the past year

Source: Bloomberg, as of 20th Sep 2016

Better Growth Translates to Better Performance

Significantly outperforming SHCOMP Index and CSI300 Index since its inception
ChiNext Index, a NASDAQ-style Index with innovative and fast-growing enterprises, especially high-tech
companies listed, recorded 202.7% growth since its inception significantly surpassing SHCOMP Index and
CSI300 Index
Correlation

Price Return Performance Comparison

ChiNext
400.0%
350.0%
300.0%
250.0%
200.0%
150.0%
100.0%
50.0%
0.0%
10/6/2010

10/6/2011

SSE50 Index

10/6/2012

10/6/2013

CSI300 Index

10/6/2014

Correlation

Shanghai
Composite
Index

Shanghai
Composite
Index

1.00

0.93

0.36

FTSE China A50

Index

0.93

1.00

0.13

ChiNext Index

0.36

0.13

1.00

FTSE China A50

ChiNext Index
Index

10/6/2015

Source: Bloomberg, as of 18 April 2016.

ChiNext Index Cumulative Performance(%)

1.
2.
3.

2011

2012

2013

2014

2015

Since
Inception

-35.9%

-2.1%

82.7%

12.8%

84.4%

123.5%

Source: SSICL, as of 18 April 2016. Note the fund cannot invest directly into the index.
Source: Bloomberg, as of 20th Sep 2016
Since inception on 1 June 2010.

Source: Bloomberg as of Dec 31, 2015

ChiNext Chinas Next, Chinas NASDAQ in Future

Consisting of the most innovative sectors and enterprises with strong diversification
At the moment, top 10 constituent stocks of the ChiNext Index account for only 26.6% of total market cap
(while for NASDAQ it is almost 50%) with no particular dominants. ChiNext is a lot like early stage NASDAQ
where future industry leaders such as Apple, Facebook can be expected. Unlike Hong Kongs GEM, ChiNext
doesn't have board-switch mechanism, the future leaders will stay and grow with the board
Stock
Code

ChiNext Constituent Name

Market Cap
(mm RMB)

Weightin
g

300104.SZ

LeShi Internet Information

91,494

4.8%

300059.SZ

East Money Information

71,665

3.8%

300017.SZ

Shanghai Wangsu Science

54,467

3.1%

300070.SZ Beijing OriginWater Technology

58,657

2.7%

4.0%

300072.SZ

Beijing Environmental

51,138

2.6%

11.8%

12.6%

300024.SZ

Siasun Robot & Automation

37,976

2.5%

8.4%

7.0%

4.3%

300027.SZ

Huayi Brothers Media Corp

35,931

1.9%

0.0%

0.0%

0.5%

9.7%

300408.SZ

Chaozhou Three-circle Group

28,679

1.9%

Materials

0.0%

2.3%

12.2%

4.6%

300124.SZ Shenzhen Inovance Technology

30,765

1.8%

300168.SZ Wonders Information Company

24,159

1.6%

Utilities

0.0%

0.7%

0.0%

3.9%

NASDAQ
100

ChiNext
Index

SME
Index

CSI 300
Index

Information Technology

59.5%

46.2%

27.8%

5.7%

Financials

0.0%

0.0%

11.6%

47.0%

Consumer Discretionary

20.4%

10.2%

17.2%

7.7%

Health Care

10.6%

13.4%

11.8%

Industrials

1.6%

18.7%

Consumer Staples

5.8%

Energy

Telecommunication
Services

Total

2.1%

Source: Bloomberg, as of 31st Aug 2016

0.0%

0.0%

0.4%

26.6%

NASDAQ

ChiNext

And more to come

CSOP SZSE
ChiNext Board
Showcasing the growth potential of
Chinas new economy

Disclaimer
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Issuer: CSOP Asset Management Limited

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