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SCMP Reporter

Price differences between mainland and Hong Kong-listed shares of the same company could be removed if the two classes of stock were directly or indirectly fungible, or interchangeable, according to Hong Kong Monetary Authority chief executive Joseph Yam Chi-kwong.

Removing the difference between H-share and A-share prices would also improve market efficiency, Mr Yam said in his online column yesterday.

The listing of a company's shares in both the Hong Kong and mainland markets by companies such as Industrial and Commercial Bank of China (ICBC) addressed mainland investors' concerns that good-quality state-owned assets were being sold only to overseas buyers, Mr Yam said.

'[But] the price differential between the H shares and the A shares remains and needs to be addressed.'

Partitioning of markets that were trading essentially the same financial instrument with the same shareholders' rights undermined the market's efficiency.

'It seems desirable for the healthy development of the market to remove artificial market partitioning,' he said.

With foreign exchange being controlled in the mainland, the A-share market was not fully open and it was hard to arbitrage between A and H shares.

ICBC yesterday closed at HK$3.50 in Hong Kong, unchanged from previous day, while the A shares closed down 0.61 per cent at 3.28 yuan or about HK$3.54.

It was possible to solve the issue without undermining foreign exchange controls, Mr Yam said.

'The two classes of shares can be made directly fungible, or indirectly fungible by trading depository certificates evidencing the holding of shares in the other market,' he suggested, without further elaboration.

A specially established public body could conduct arbitrage whenever a significant exchange-rate-adjusted price differential appeared, he said.

While there were arguments that an arbitrage mechanism  would not be in Hong Kong's interest, the introduction of an effective mechanism would lead to market expectations being strong enough to help bring about price equalisation, lessening the need for actual arbitrage activities, Mr Yam said.

Kenny Tang Sing-hing, a director at Tung Tai Securities, said A shares and H shares were in two different markets and it was not necessarily to align the price of two classes of shares as the price differential was not a major concern.



Yam says price difference of A, H shares needs attention