Hong Kong stocks are cheapest against Chinese equities in a year amid Evergrande debt woes, regulatory storm

33 per cent discount that Hong Kong shares of dual-listed companies had to their mainland China-traded stocks is the biggest since October 15 last year

It will take some time for Hong Kong stocks to seek a bottom and sentiment has yet to improve: analyst

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An electronic screen displays stocks, including those of China Evergrande Group, in Hong Kong. The Chinese conglomerate’s debt woes have added to difficulties for the city’s stock market. Photo: Bloomberg

Published: 2:33pm, 27 Sep 2021Updated: 7:31pm, 4 Oct 2021

Hong Kong stocks were this month trading at their cheapest levels relative to China’s onshore shares in almost a year, as the unfolding debt crisis at China Evergrande Group and a regulatory crackdown weighed on risk appetite in Asia’s third-biggest market.

The 33 per cent discount that the Hong Kong shares of dual-listed companies had to their mainland China-traded stocks was the biggest since October 15 last year, according to a gauge of the price difference between the two markets compiled by Hang Seng Indexes Company.

“Lots of the industries Hong Kong-listed companies are engaged in still need time to digest the policy pressure,” said Wang Yitang, an analyst at Huaxi Securities. “It will take some time for Hong Kong stocks to seek a bottom and sentiment has yet to improve.”

The divergence between the two markets has widened further this month after the exposure of China Evergrande’s debt woes, which has compounded the difficulties Hong Kong stocks face. The Hong Kong market has already been whipsawed by Beijing’s regulatory actions, which have ensnared industries ranging from ride-hailing and technology firms to after-school tutoring and casino companies.

Meanwhile, onshore markets in Shanghai and Shenzhen have largely withstood this turmoil because of the limited number of companies that are directly exposed to Beijing’s clampdown.

The Hang Seng Index is among the worst performers of the world’s major benchmarks this year, falling 11 per cent. The 60-member gauge is valued at 10 times earnings, the cheapest among major markets globally, according to Bloomberg data. The Shanghai Composite Index has, in contrast, risen 3.2 per cent.

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