China’s dual-listed companies’ shares show Hong Kong discount over yuan counterparts at 15-month lows

Hong Kong-traded share of Chinese dual-listed companies are at their smallest discounts to their counterparts on the mainland in 15 months, reflecting the strong momentum in the city’s US$5.4 trillion equity market that has already entered a bull market.

An index compiled by Hang Seng Indexes, which tracks the price difference between the mainland Chinese company’s shares traded in Hong Kong, also known as “H shares”, and their mainland China-traded “A shares”, has fallen to 133.32 on Monday, the lowest since January 27, 2023. A reading above 100 indicates mainland stocks command premiums over those trading in Hong Kong, and vice versa for readings below 100, according to the compiler.

At the current levels, the H shares of 156 dual-listed companies, including the likes of Industrial and Commercial Bank of China and Ping An Insurance Group, trade at an average discount of 25 per cent to their shares trading in Shanghai or Shenzhen.

China’s tight capital controls limit the ability of Chinese investors to expatriate funds and restrict them to investing in A shares, generally boosting their share prices and valuations above those of H shares.

But the four-month rally in Hong Kong stocks, which has boosted the Hang Seng Index by 11 per cent this month alone, has narrowed the gap as bargain-seeking global investors are returning, with China ramping up efforts to resolve the property-market crisis. Even after these gains, the Hang Seng gauge trades at 6.9 times reported earnings, the cheapest globally, according to Bloomberg data.

“There will be some divisions as to where the markets will head after this decent run,” Fang Yi, Guotai Junan Securities in Shanghai. “But for us, Hong Kong stocks have more upside room on earnings improvement expectations amid increased policy support for China’s property market and upgrading of China’s growth forecast by overseas investment banks.”