Cheapest China H-Shares Surge in Late Hong Kong Trading

Chinese stocks that are cheapest in Hong Kong relative to their mainland counterparts surged in late trading in the city, with auto-parts maker Zhejiang Shibao Co. (1075) rallying to a record high.

Zhejiang Shibao, whose H-shares cost 80 percent less than its stock in Shenzhen, jumped in the final hour of trading to close 11 percent higher, while adding 1 percent on the mainland. Shenji Group Kunming Machine Tool Co. advanced 11 percent in Hong Kong, paring its discount in the city to 54 percent. Luoyang Glass Co. soared 17 percent and Northeast Electric Development Co. added 7.5 percent. None of the three companies’ stocks rose more than 0.4 percent in mainland markets.

The Hang Seng China AH Premium Index tracking valuation differences is trading near a eight-year low, signaling investors are favoring Hong Kong shares, known as H-shares, over A-shares, their mainland equivalents. MSCI Inc. said yesterday it will exclude China’s local shares from its global indexes due to limitations to investing in the market.

“MSCI’s non-inclusion of Chinese A-shares is leading to a wider spread between A- and H-shares after anticipation last month about their possible inclusion,” said Gavin Parry, managing director of Hong Kong-based brokerage Parry International Trading.

MSCI, whose gauges are used by money managers with an estimated $8 trillion of assets, had been consulting with banks and funds on whether to include yuan-denominated A shares in its benchmark indexes. Yesterday’s decision also comes after a planned stock-market link between Hong Kong and Shanghai markets fueled speculation the valuation differences between the markets will narrow and eventually converge.

To contact the reporter on this story: Kana Nishizawa in Hong Kong at knishizawa5@bloomberg.net

To contact the editors responsible for this story: Sarah McDonald at smcdonald23@bloomberg.net Jim Powell

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