Hong Kong stocks, unloved in 2020, have new admirers among most-accurate forecasters amid Hang Seng Index rebalancing

Chinese stocks in Hong Kong trade at 43 per cent discount to their equivalent in mainland markets, the most since February 2016

Analysts who correctly predicted major Chinese stock trends say the broader Hong Kong market will catch up as value hunters emerge

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An electronic board showing the closing level of Hang Seng Index outside bank branch in Central, Hong Kong. Photo: Felix Wong

Published: 7:30am, 7 Sep 2020Updated: 5:09pm, 25 Oct 2020

Hong Kong stocks are so unloved by investors this year that their valuation has sunk to the lowest in more than four years relative to their peers in mainland China. For some of the market’s most accurate stock forecasters, the tide may be about to reverse.

Companies listed in Asia’s third-largest market, commonly known as H shares, trailed their equivalent A shares on mainland China bourses by 43 per cent last week versus 27 per cent in March, according to the Hang Seng Stock Connect AH Premium Index. The discount is the deepest since February 2016 and double the historical average.

The last time this happened, the Hang Seng Index rallied by almost 40 per cent in the subsequent two years, while the Shanghai Composite Index slumped 5 per cent.

“H shares are better in terms of valuation,” said Hong Hao, managing director at Bocom International in Hong Kong, who correctly predicted China’s stock market crash that wiped out US$5 trillion in 2015. “A shares are clearly running into resistance.”

A rebalancing of the Hang Seng Index, for a start, could entice big institutional buying as some of the hottest technology stocks such as Alibaba Group Holding and Xiaomi attract managers of global index-linked funds.