World-Beating China Rally Doomed by PetroChina’s Hong Kong Gap
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Restrictions on foreign and local investment that prevent arbitrage with H shares helped make mainland equities more expensive.
It is pretty odd that there is such a large premium that local Chinese investors must pay to own stocks in the same companies available to foreign investors. There has been a discount on the Hong Kong shares (H-shares), of maybe 20-30%, for years. But it seems that either the H-shares are cheap or the Chinese shares are too expensive (or maybe a little of both). I am positive on the outlook for China both in the short and long term. Though investments there do have substantial risks (as they do anywhere). I would imagine this premium for Chinese (A-shares) should also largely disappear over the next decade as the market is allowed to become one (and at least allow arbitrage between to the two markets to reduce the premium).
Related: Capitalism in China – Easiest Countries for Doing Business 2008 – China and USA Exports and Imports Drop Sharply
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You won’t see that premium for long. Someone will move it and charge less, and less, and less, until the premium is gone. Capitalism is makings it’s move as we speak, simply by discussing it.