Price gap between A and H shares expected to remain, even with the arrival of Shenzhen-Hong Kong trading link
International investors trading in A shares still represent just 1 to 2 per cent of Shanghai’s turnover, while mainland investor trading represents 5 to 10 per cent of Hong Kong’s turnover
The cross-border Stock Connect trading link between Hong Kong and Shanghai has led to increased fund flow between the two stock markets – but it has yet to narrow the price gap between the shares listed on either bourse, illustrating just few investors have profited by trading in both.
And brokers believe the Shenzhen-Hong Kong Stock Connect, which goes live from Monday, December 5, is unlikely to make any difference.
While stocks such as HSBC and Standard Chartered – dual-listed in Hong Kong and London – have seen their prices perform similarly in the two markets, A shares [shares in mainland China-listed companies traded in Shanghai and Shenzhen] in general are trading at a premium of about 23.18 per cent to H shares [shares in Chinese companies listed on the Hong Kong Stock Exchange], according to the Hang Seng China AH Premium Index which tracks the price gap between the two.
A reading of 100 would mean no price gap, but the index stood at 123.18 per cent on Friday, November 25, compared with 148.84 in January 21. The gap remains, but at least it’s narrowing.
In the most extreme case, Luoyang Glass H shares traded at HK$5.56 in Hong Kong on Tuesday, while its A shares traded in Shanghai at 25.61 yuan, representing a premium of its A to H shares of 417.45 per cent.
Even with the stock connect in place, few investors sell expensive A shares to buy cheaper H shares, and pocket the difference.
One reason for this could be that cross-border turnover is still much lower than the domestic pool of investors.