THE mainland’s first mutual fund with access to the Hong Kong exchange link says stocks in the city are still cheap after surging to seven-year highs.

    Mainland shares listed in Hong Kong may outperform their mainland counterparts because valuations are lower, said Linda Xie, the Shenzhen-based fund’s manager at Invesco Great Wall Fund Management Co., which raised 11 billion yuan (US$1.78 billion) in 19 days after opening it up to investors March 26.

    Dual-listed stocks on mainland exchanges are 25 percent more expensive than those in Hong Kong, according to the Hang Seng China AH Premium Index.

    Speculation that mainland mutual funds will pile into Hong Kong equities has propelled the Hang Seng China Enterprises Index of H shares to a 24 percent gain since March 27, when regulators said they expanded the types of funds eligible to access the bourse link. Even after its rally, the gauge is valued at 10 times estimated earnings, versus a multiple of about 14 for the MSCI Asia Pacific Index.

    “Low-valuation, big-capitalization H shares that have big discounts to A shares and good liquidity will realize above-average returns,” said Xie. She favors Internet, electronics manufacturing and consumer firms.

    The fund is the mainland’s first actively-managed mutual fund with a mandate to invest in H shares through stock connect. (SD-Agencies)