Since the beginning of 2022, the main indexes of Hong Kong stocks have performed well: the Hang Seng Index and the State-owned Enterprises Index are up nearly 6%, and the Hang Seng Technology Index is up more than 3%. However, the brightest performance is still our protagonist today.Red chip index (800151.HK) $。

The red chip index has risen sharply recently, rising again late Friday, rising 7.74% this month, the highest level since May last year.

The concept of "red chip" may be no stranger to you. But why is it called "red chip"? what is the difference between it and state-owned enterprise stocks? Today, Futu Information will take you to learn more about red chips and some possible investment opportunities.

Why are they called "red chips"?

The concept of red chip (Red Chip) was born in the Hong Kong stock market in the early 1990s. At that time, Chinese companies set off a frenzy of shell listings and direct listings in Hong Kong, and investors coined the term "red chips".

There are two reasons for its name:

First, because China at that time was internationally known as "Red China", such companies had a Chinese background and were called red to indicate attributes.

Second, there are blue, red and white chips in the casino, of which blue chips are the most valuable, red chips are the second, and white chips are the worst. Such Chinese background companies are active in the market and perform well, but they are slightly inferior to blue chips in size and strength.

The term "red chips" can be described as a pun, which has been widely recognized as soon as it has spread and is still in use today.

It is understood thatThe early red chips were mainly formed after the acquisition of small and medium-sized listed companies in Hong Kong by some Chinese companies.

In January 1984, Hong Kong's largest listed electronics company was on the verge of collapse because of the financial crisis. Bank of China Group and China Resources Group of Hong Kong, with a Chinese background, formed a new company and bought a 34.8 per cent stake in Kangli at a cost of HK $180 million.Kangli Investment has become the first listed company controlled by a Chinese company, that is, the first red chip.

At the beginning of 1990, Citic Group in Hong Kong spent 700 million Hong Kong dollars to acquire Pacific Development, which set off a "Pacific whirlwind".Citic Pacific's market capitalization jumped to HK $10 billion in subsequent mergers and acquisitions and was included in the Hang Seng Index in August 1992. Since then, other Chinese institutions have also launched acquisitions.

From 1996 to 1997, red chip speculation and capital injection reorganized, which was very popular for a time.Data show that from January to June 1997, the total amount of capital raised in the Hong Kong stock market was about 143.3 billion Hong Kong dollars, of which red chips accounted for 23.8 percent.

However, backdoor listings or indirect listings are too expensive and costly, and domestic policies have since allowed Chinese companies to list directly in Hong Kong or overseas.Therefore, the red chips that have emerged in recent years are mainly formed after some mainland provinces and cities have reorganized their window companies in Hong Kong and listed them in Hong Kong, such asShanghai Industrial Holdings (00363.HK) $、$Beijing Holdings (00392.HK) $等。

In addition to B shares and H shares, red chips have become an important channel for mainland enterprises to enter the international capital market to raise funds.

How to define red chips?

There is some controversy about the definition of red chips, such as the red chip index compiled by Bloomberg, which is divided by business scope:

If a company's main business is in China, the stock registered outside China and listed in Hong Kong is a red chip.

Another definition is divided according to the number of rights and interests. The Hang Seng Red Chip Index released by Hang Seng Index on June 16, 1997 is compiled in this way:

If most of the shareholders' rights and interests of a listed company come directly from mainland China and are controlled by Chinese investors, then the stock registered outside China and listed in Hong Kong is a red chip.

Because of the practicability of Hang Seng, the latter division method is more mainstream. At present, the most representative red chip stocks listed in Hong Kong are$China Mobile Limited (00941.HK) $、$CNOOC Limited (00883.HK) $、$China Resources Land (01109.HK) $Wait.

The difference between red chips and H shares

The shares of state-owned enterprises, also known as H shares, refer to the shares of Chinese enterprises registered in the mainland and listed in Hong Kong. It is called H-share because of Hong Kong English-HongKong initials. Although the shares of state-owned enterprises and red chips refer to the shares of Chinese enterprises listed overseas, they are essentially different.

1) different places of registration of companies:Although red-chip stocks are also listed in Hong Kong, they are fundamentally different from H-shares. H shares represent foreign stocks registered in mainland China and listed in Hong Kong, which are actually mainland companies. Red-chip shares are registered and managed overseas and belong to Hong Kong or overseas companies.

2) the liquidity of shares is different:All red-chip stocks can be listed and traded, while some H-shares can not be listed and circulated.

3) the refinancing ability of the secondary market is different:When issuing new shares, red chips may have more flexibility and space, while the risk of H-share issuance may be higher and the time may be relatively long.

4) the feasibility of returning to the domestic stock market is different:H shares can directly apply for IPO in the domestic stock market at the same time, while red chips are less likely to return to the A share market.

5) the approval procedures are different:When issuing convertible bonds and other bonds, red-chip companies do not need to comply with mainland legal procedures and conditions, but H-share companies need mainland legal procedures and conditions and approval from the relevant state departments.

What are the investment opportunities for red chips?

It is the end of three years of state-owned enterprise reform, and many institutions and investors believe thatHong Kong shares of high-quality central enterprises have low valuations and standardized corporate governance, which are ushering in new opportunities for value revaluation.

A few days ago, Societe Generale Securities issued a research reportIn the medium to long termWith the implementation of the "double carbon" strategy, high-quality development and common prosperity, the fundamentals of some central enterprises in Hong Kong are ushering in opportunities for turnaround or transformation.

In the short and medium termChina's economy is "stable" in 2022, and the Chinese economy is expected to stabilize and recover. Both A-shares and Hong Kong stocks will benefit from investment opportunities. These include:

1) the improvement of the industry boom brings about a revaluation.China's monetary and credit environment will be looser than that in 2021, and the pro-active fiscal policy will also work in structural and deterministic areas, optimistic about the average return of agriculture, construction, building materials, securities firms, aviation, environmental protection, telecom operators and other industries.

2) Strategic bullish industries have short-term "falling opportunities" to increase their holdings on bargains.Green electricity, new energy, new infrastructureThe direction in which these long-term strategic opportunities can be combined with short-term steady growth.

3）Real estate, finance and other "bond" assets of central enterprisesIt is expected to fall deeply and rebound, and the "true value stocks" with improved fundamentals usher in a good opportunity for medium-and long-term allocation.

The above is a detailed introduction to red chips.

What do you think of the recent opportunities for red chips?

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The Information Master has also sorted out the investment views of various institutions on central enterprises in Hong Kong stocks. For more information, please click on the following link: