CDR, namely Chinas depository receipt, refers to a company listed abroad (including Hong Kong, China) that places part of its issued and listed shares in the local custody bank, which is issued by the deposit bank in China and listed in the A-share market, and settled in RMB.
Wang Jing, manager of Qianhai United science and technology pioneer fund, pointed out that China tried to implement CDR investment in 2001, restarted the research and Discussion on CDR investment in 2016, and then made a clear specification on the basic system of CDR trading in 2018, and restarted the pilot again in 2019 with the opportunity of setting up the science and technology innovation board. Since 2020, CDR investment has gained policy support again. The list of the first batch of authorization items for comprehensive reform pilot project of building socialism with Chinese characteristics in Shenzhen issued recently clearly that it is necessary to improve the system of domestic issuance and listing of innovative enterprises, and promote enterprises with innovation leading role to issue stocks or Depository Receipts (CDR) and list on Shenzhen Stock Exchange.
It is reasonable to believe that the market environment promoted by this round of CDR is relatively mature, and it can be expected that more high-quality enterprises will land on a shares through CDR in the future. With the further integration of valuation system and research methods with the international market, the internationalization process of A-share will be further accelerated. Wang Jing said.
Sun long, a senior analyst of fund beans, said that the smooth issuance and listing of the first CDR will provide reference for more China capital stock companies to return to a shares through CDR. It can be expected that more and more Chinese stocks will return to a shares through CDR in the future.
From the perspective of benchmarking effect, the first CDR landing on the science and technology innovation board sends a positive signal to the market. Ping An fund analysis points out that since the reform of registration system, the path of returning red chips to a shares has become increasingly clear, and overseas high-quality red chips are returning in succession. The implementation of CDR will further reduce the threshold of return and accelerate the process of the return of scientific and technological red chips.
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CDR has begun to be incorporated into the investment vision of public funds. CDR listing expands the allocation scope of domestic public offering funds for high-quality overseas listing targets. By holding CDR targets, we can further expand the investment portfolio, so as to achieve the investment objectives of global asset allocation and smooth income curve. Ping An Fund said that in the short term, CDR may enjoy a certain premium due to the scarcity of resources; in the long run, with more overseas companies financing in the form of CDR in China, the internationalization of a shares will be further deepened, which is expected to further promote the valuation repair of related targets.
Ping An Fund believes that the quality of new economy companies, information disclosure in overseas markets and overseas trading system are quite different from those of a shares, and it will be more difficult to invest in CDR and select them. In addition, many high-quality new economy and technology leading companies have higher valuations overseas, which also puts forward higher requirements for fund managers valuation and pricing ability.
Wang Jing said that when CDR is added to the investment scope of public funds, it is expected to bring investment opportunities to the fund portfolio, and actively participate in the issuance of CDR and secondary market transactions, which has a positive impact on investment returns. CDR innovation can also contribute certain excess returns to the fund portfolio. However, CDR investment will also pose a further challenge to the valuation cognition of technology-based enterprises. In the future, with the increasingly rich subject matter of technology stocks, the valuation may also be divided. The high premium caused by scarcity may be reduced, and the subject research should go deep into the core competitiveness of the company in terms of technology, products and customers.
CDR is still the stock of Chinese enterprises in essence, but the price of CDR is directly linked to the price of its listed stocks. This means that the price of CDR will be directly affected by the price of its listed shares. Sun long said that in the CDR investment decision-making, in addition to the analysis of CDR common stocks, it is also necessary to analyze the price fluctuation of its listed stocks. Therefore, in order to achieve excess returns, fund managers need to conduct in-depth analysis on the stock price trend of companies corresponding to CDR and the relative positioning of Companies in the listed market.
Sun long further said that from the perspective of portfolio, considering that CDR is mostly listed in a more mature stock market. Therefore, when CDR is included in the fund portfolio, the portfolio volatility will be reduced to a certain extent. In addition, considering that most of the medium cap stocks returned to a shares through CDR are high-quality assets, in the case of good stock selection, it may be able to improve the return of the portfolio.
Source: Ren Hui, editor in charge of China Securities Journal_ NBJ9607