Price difference between A and H shares closes
The differential between the prices of A shares and H shares has nearly disappeared as the downturn on the mainland equity market has turned out to be more severe than its Hong Kong counterpart.
The Hang Seng China AH Premium Index nudged down 0.07 per cent to 100.15 points yesterday, meaning that the yuan-denominated A shares of the dual-listed companies traded at a skinny 0.15 per cent premium to their H-share counterparts.
Analysts, however, expected the A-H premium to re-emerge in a few months on the belief that the more speculative mainland market would be driven up by a huge capital influx when investors regain confidence.
'The monetary tightening was the major driving force for the sharp fall of A shares,' said Essence Securities analyst Liu Jun. 'It proved again that liquidity rather than fundamentals played a decisive role in the A-share market performance.'
The Shanghai Composite Index has dived 21.9 per cent so far this year, significantly farther than the 7.9 per cent decline in the Hang Seng Index.
An increasing number of mainland investors have chosen to cash out, spooked by fears that Beijing would further tighten monetary policies to contain inflation and curb any asset bubbles.
Turnover on the Shanghai Stock Exchange was valued at 61.6 billion yuan (HK$70.2 billion) yesterday, less than half of the figure in mid-April.
The benchmark Shanghai gauge jumped 80 per cent last year thanks to an influx of speculative capital, a result of easy credit.
Wei Jianing, a researcher at the State Council's Development Research Centre, estimated that 1.2 trillion yuan of banking loans were illegally invested in equity in the first half of last year.
Companies flocked to the stock market, using loans borrowed for industrial projects to buy shares and chase short-term gains.
Beijing made an about-face early this year, requiring banks to curb their lending binges by increasing their reserve requirement ratios and using administrative forces to slow down the pace of new loans.
Among the 60-odd mainland firms listed both in Hong Kong and Shanghai, eight banks and insurers saw their A shares trade at a discount to H shares yesterday.
The A-share market is now off-limits to overseas investors. Only qualified foreign institutional investors were granted a combined US$30 billion quota to invest in the mainland-listed stocks.
'As long as the Chinese currency is non-convertible under capital account [rules], it is not a surprise to see the A shares trade at a premium to H shares,' said Morgan Stanley China strategist Jerry Lou.
'The A-H premium is set to re-emerge in the future.'
In control
Beijing's tight monetary policies have driven the sharp fall of A-shares
While the Hang Seng Index has dropped 7.9pc this year, the Shanghai Composite Index has plunged: 21.9%
