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BIZCHINA / News
New index to track AH share price gaps
(Chinadaily.com.cn)
Updated: 2007-07-03 13:47
A new index will enable investors to track the price gap between shares
of companies traded on both the Hong Kong and Shanghai bourses, with the
launch of Hang Seng China AH Premium Index, although opportunities for
arbitrage between the two markets will remain limited, said HSI Services.
While 45 Chinese companies are listed on both stock exchanges, Hong Kong
and Shanghai investors have reached different conclusions about their
valuations. Shanghai's renminbi-denominated A shares, which can only be
bought and sold by domestic investors, trade at an average 40 per cent
premium to their Hong Kong counterparts.
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Yet there has been no real-time measure of this differential. HSI
Services, which compiles Hong Kong's blue chip Hang Seng index, plans to
change that with the Hang Seng China AH Premium Index.
The index, consisting of large companies traded on both stock markets,
will be launched this month and indicate the premium or discount at which
Shanghai shares are trading compared with Hong Kong shares, with a
measurement of 100￡? indicating there is no price difference.
According to the AH Premium index, the price gap reached a peak on June
13, when A shares were 58 per cent more expensive than their H share
counterparts.
The price difference can be partly explained by China's capital controls
and the differing perspectives of domestic and international investors.
The increasing scale of the difference, however, is fuelling calls for
arbitrage mechanisms to be developed.
Last month, Hong Kong top financial officials pledged in separate
interviews with the China Securities News that the difference between H-
and A-share prices will diminish eventually.
Eddy C. Fong, chairman of the Securities and Futures Commission, said it
is normal that there is price difference between the A- and H-shares of a
same company, as there are still hurdles between the two markets,
including systematic and exchange rate problems. But with closer ties
between the two sides and the improvement of capital flow channels, the
gaps will get smaller in the long run, he said.
Hong Kong had suggested to set up a cross-trading platform for the stocks
listed on both of the markets, said Ronald Joseph Arculli, independent
non-executive chairman of Hong Kong Exchange and Clearing Ltd. Such a
platform, said Arculli, may help reduce the price discrepancies, but
needs more commercial and political supports for its initiation. With
better conditions in liquidity and price-recognition mechanisms in
further cooperation between the two sides, the gap in share prices of the
A+H companies will diminish, he said.
Mainland companies accounted for 73 percent of equity raised last year in
Hong Kong and contributed to nearly half of the city bourse's market
capitalization, according to regulatory data. Hong Kong last year hosted
nearly 50 percent of the fund-raising activities by mainland enterprises,
including giant banks and energy firms, which raised more than US$45
billion through stock sales there.
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(For more biz stories, please visit Industry Updates)
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