Stock Connect

Mainland Chinese investors pile into Hong Kong shares as price gap narrows

PUBLISHED : Sunday, 12 February, 2017, 10:17pm
UPDATED : Sunday, 12 February, 2017, 11:03pm

The amount of money mainland Chinese investors poured into Hong Kong stocks via the stock connect schemes last week soared by 66 per cent as they took advantage of the narrowing price gap between A and H shares to conduct arbitrage.

Mainlanders can trade Hong Kong stocks via the two stock connect schemes that have linked the bourses of Hong Kong and Shanghai since November 2014 and Shenzhen and Hong Kong since December last year. On Friday, the value of south bound trading by mainland investors using the Shanghai and Shenzhen stock connect to buy Hong Kong stocks stood at a total of HK$7.62 billion, representing 9 per cent of total market turnover.

This is 66 per cent higher than the average daily value of mainlanders trading Hong Kong stocks via the two connect schemes in January, which stood at HK$4.57 billion, and 39 per cent higher than December, which was HK$5.45 billion.

The Friday southbound trading was higher than the north bound trading, which saw international investors buying 4 billion yuan (HK$4.5 billion) worth of Shanghai A shares, while overseas trading in Shenzhen A shares totalled 1.95 billion yuan.

Louis Tse Ming-kwong, director of VC Brokerage, said many mainland Chinese investors returned to the market last week after the Lunar New Year holiday.

“Before the Lunar New Year, many investors avoid the stock market as it’s ahead of a long holiday. Now the festival celebration is over investors are finding opportunities in the market and the price gap between the A and H shares are a good opportunity for them to take profit. H shares are cheaper than A shares and this has attracted many mainlanders to trade H shares via the stock connect last week,” Tse said.

The Hang Seng China A-H Premium Index traded at 119.16 on Friday morning before closing at 120.43, the lowest level since October 6 last year. Before the Lunar New Year, the price gap was at 123.45.

The index tracks the average price gap between A shares listed in Shanghai and their counterpart H shares listed in Hong Kong. If the index is at 100 it means there is no difference between the two classes of the shares, while a number above 100 refers to A shares trading at a premium to H shares, while below 100 means H shares are more expensive than A shares.

The narrowest A and H shares gap was seen on November 24, 2014 when the index hit 100.34, shortly after the Shanghai and Hong Kong stock connect was launched on November 17, 2014. The widest gap occurred on July 8, 2015, with an index level of 154.11 – which meant A shares on average were trading 54 per cent higher than Hong Kong H shares amid the mainland market rally before the market crash.

Joseph Tong Tang, chairman of Morton Securities, said the price gap between A and H shares would remain although the stock connect would provide channels for investors to seek arbitrage.

“The Hong Kong market is traded more by international investors while the mainland markets are traded more by retail investors. The two pools of investors would have different views on stock investments. Therefore, the premium gap may narrow sometimes but it won’t disappear,” Tong said.