The “through train” is in town and it’s time to get aboard, if the market buzz is to be believed. A through train is a way of allowing Hong Kong- and mainland-based investors to trade shares directly across the border.
The State Council announced Thursday that it had given the go-ahead for such a link between the Hong Kong and Shanghai stock exchanges but the lack of detail on the scheme means it’s hard to predict which sectors will gain in the long term. Immediate market reaction suggests that one obvious change will be a narrowing in the difference in the price of A shares and H shares. But industry players warn that such trends may not be sustained.
Peng Weixin, of brokerage firm Core Pacific-Yamaichi, is one analyst cautioning against the recent spike in some H shares in Hong Kong. H shares are Hong Kong-traded shares of mainland companies while A shares are yuan-denominated stock traded in Shanghai or Shenzhen.
Peng said there was a reason why some H shares were trading at a deep discount compared with their A-share counterparts, and these H shares could be overvalued after the recent rise.
“Most H shares that are trading at a discount are doing so mostly due to poor fundamentals. Investors may be piling in this time on the chance of making a quick profit, which is not sustainable,” online financial news portal CNFOL quoted him as saying.
Still, investors seem fascinated by the potential convergence of a company’s mainland-listed A shares and its Hong Kong-listed H shares.
Loss-making car-glass producer Luoyang Glass (01108.HK, 600876.CN) shot up as much as 14 percent Monday morning and has risen more than 60 percent in the last two trading sessions, despite still trading at a 60 percent discount to its A share.
But those H shares that were trading at a premium have come under some selling pressure. For example, mainland lenders, insurance and infrastructure plays were generally lower after the two exchanges struck their tie-up deal.
The relationship between A and H shares has long been volatile. Back in 2007, the Hang Seng China AH Premium Index (AH Premium Index), which tracks the average price difference of A shares over H shares, hit a peak of 213, indicating A shares were valued at twice as much as their Hong Kong counterparts.
The A-share market has lost steam since then, and its valuation is among the lowest of global bourses. Together with the depreciation of the renminbi since the start of this year, A shares are now cheaper on average than H shares, with the AH Premium Index closing below parity at 96.58 Friday.
The State Council’s announcement Thursday also set off a rush to buy mainland brokerage plays on hopes that the sector will be a major beneficiaries of the cross-border trading link. But Peng was dismissive, saying he didn’t think mainland brokerages would benefit that much.
While overall trading volume may increase, traditional brokerage firms are facing immense pressure from internet rivals that charge far lower commissions — as little as 2 yuan (0.32 yuan) per 10,000 yuan-transaction in some cases.
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