Beijing’s efforts to stabilize its equity markets are helping drive the pricing gap between dual-listed stocks in China and Hong Kong to the widest level in nearly 17 months.
Equities listed on mainland exchanges, known as A-shares, are trading at a 33% premium to their offshore counterparts, the Hang Seng Stock Connect China AH Premium Index showed. The gauge is on track for its biggest monthly advance since January 2024.
While stocks in both markets are struggling with lackluster earnings prospects due to weak consumption, state-backed buying is helping to cushion mainland equities. Hong Kong, where foreign investors have easier access to, is also more vulnerable to the ebbs and flows in global risk sentiment and pressure on artificial intelligence plays. Those dynamics may keep the valuation gap elevated, analysts said.
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Mainland shares have historically traded at a premium to their Hong Kong peers, or H-shares, partly due to capital controls. While the gap narrowed last year as AI-driven momentum favored offshore equities, it has widened again over the five months through October.
“In the near-term, China A-shares may be more resilient than Hong Kong listed equities if the global sentiment on AI investment continues to deteriorate,” said Scarlett Liu, AC equity derivatives strategist at BNP Paribas. “We observed significant inflows into China A-share exchange-traded funds in October as Chinese policymakers try to reduce the downside volatility.”
Hong Kong stocks are also losing a key support as mainland investors pull back. They’ve sold around HK$20 billion worth of shares on a net basis this month through Tuesday, set for the biggest monthly outflow since 2021, according to Bloomberg-compiled data.
The widening gap is reviving interest in trades that seek to capitalize on price differences between the two markets. While A-shares and their Hong Kong counterparts aren’t interchangeable, investors can use derivatives or long-short positions to bet on the direction of the premium.
Contemporary Amperex Technology Co. Ltd. is emerging as a popular option, with investors buying its Shenzhen shares and shorting the Hong Kong stock on bets the latter’s premium will narrow. The company’s buyback of its mainland securities as well as the national team support are key catalysts for the trade, said Andy Zhou, a sales trader at Market Securities Hong Kong Ltd.
The premium of CATL’s Hong Kong shares over their Shenzhen counterparts has more than halved from its peak in late June, Bloomberg-compiled data show. Meanwhile, bearish bets against the offshore shares have climbed to 26%, doubling from the level in May, according to S3 Partners data.
While the A-H share market gap is likely to stabilize around this level in the coming months, “there will be a bit of upside risk to the premium,” said Homin Lee, a strategist at Lombard Odier in Singapore. Offshore tech listing may face more headwinds if there are no new positive catalysts from macro data or policy signals, he added.
This article was generated from an automated news agency feed without modifications to text.
