Many people realise that even though for the same company’s shares, those traded in Hong Kong (so called H-shares) are now traded at a much higher valuation than the A shares traded in China.
This has not always happened of course, but this has been the case for the past 1 or 2 years really.
Because the Chinese market is a closed market, capital cannot flow in and out of the country easily, so there is no easy way to perform any arbitrage to close the prices gaps. Back in 2007, valuations of stocks in China were much higher than in Hong Kong. That was why when rumour suggested that the Chinese government would allow Chinese citizens to buy stocks in Hong Kong (so that excess liquidity in China can be passed to Hong Kong), stocks prices in Hong Kong jumped like crazy for a while (before crashing).
Now, it’s the reverse. Why?
This is an unscientific and random observation. As I now rely more on the mainland Chinese media (mainly news websites) for China news, I did not realise how the views of Chinese media and Hong Kong media has diverged quite dramatically. To put it simply, the Chinese media is getting much gloomier in their reporting of the economy than their Hong Kong counterpart.
Either the Chinese media are exaggerating the situations, or those newspapers in Hong Kong simply know nothing about what’s happening in China. The latter is quite likely: media in Hong Kong always know nothing about what’s happening outside of Hong Kong. Whether the Chinese media is exaggerating the threats, I will leave it to your thought.
This article originally appeared here: Why H shares outperformed A shares
Also sprach Analyst – World & China Economy, Global Finance, Real Estate
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