The announcement on the QDII has been positively viewed by the market. As the H-shares are trading at a discount to their A-share counterparts, the gap in values for shares in the same company should not be sustained. It is believed that many mainland investors would be better off buying H-share (undervalue) and taking profit on the A-share. Hence the HK market soared yesterday. This may continue for a while.

However, the H-share market is more mature than the A & B Markets. As most analysts believed that the A-share is closed to a bubble, the upside potential of H-share to catch up to the same ‘bubble’ level is fairly remote. Moreover, the overall quota remains at RMB14.2 bn (for the QDII) hence the net impact may not be that significant. In addition, with such a bullish sentiment in the A & B markets, it is unlikely to curb the mainland investor's interest in a short term.

In short, we still believe the market (A share) is running ahead of fundamentals and short term correction remains possible.