By Clement Tan
HONG KONG, Nov 28 (Reuters) – Investors looking to exploit the widest gap in three years between the performance of mainland and offshore Chinese stocks could well get their fingers burnt.
H-shares, or Chinese stocks listed in Hong Kong, are trading at their biggest premium to mainland-listed A-shares since October 2010, as offshore investors cheer Beijing’s bold economic reform plan unveiled this month.
The H-share benchmark index surged 7 percent last week alone, its biggest weekly gain in nearly two years, outperforming a 2 percent rise for the CSI300 index of leading A-share listings during the same period.
Qualified foreign investors may see the gap as an opportunity to switch into the A-shares of dual-listed Chinese companies whose H-shares have outperformed. This strategy could backfire, however, as the contrasting liquidity situations in the two markets suggest the gulf could remain for some time.
“Theoretically, you could go long A-shares and short the H-share market, but I wouldn’t be in any hurry to do that now,” said Hong Hao, chief equities strategist at Bank of Communications International.
“With liquidity so tight in the mainland and improving in Hong Kong as global funds start to allocate more money to offshore equities, you are going to end up getting squeezed on both sides,” Hong said.