Vanke H-Shares Tumble as Shorts Pounce Before Bourse Link

China Vanke Co. (2202) tumbled in Hong Kong by the most since its June listing as short sellers bet an upcoming exchange link will help narrow the stock’s premium over its mainland-traded counterpart.

Vanke, the nation’s largest property developer, slid 6.1 percent to HK$15.38 at the close, compared with a 0.8 percent decline by the company’s yuan-denominated shares in Shenzhen. The Hong Kong shares, which became eligible for short-selling today, were 37 percent more expensive than their mainland-traded peers yesterday.

Exchanges in Hong Kong and Shanghai agreed in April to allow cross-border trading, opening up the mainland market further to foreigners while giving wealthy Chinese investors a route to buy Hong Kong stocks. Valuation gaps between the two bourses are narrowing after reaching the widest since 2006 on July 23. While Vanke trades in Shenzhen, which won’t be part of the Hong Kong link, Value Partners Group says it expects the bourse will be allowed to join the program in the future.

The premium is “definitely one of the reasons people are selling because the gap is huge,” Steven Leung, director of institutional sales at UOB-Kay Hian Holdings Ltd., said in Hong Kong.

The Hang Seng China AH Premium Index climbed 0.7 percent to 93.59 today. A level of 100 on the gauge equals parity. The Hong Kong stock exchange said the start date for the exchange link will be announced by regulators, after the National Business Daily reported it would begin on Oct. 13.

The Shanghai Composite Index rose 0.3 percent, reversing a loss of 0.3 percent, after data showed the nation’s export growth unexpectedly accelerated. The Hang Seng China Enterprises Index fell 0.4 percent.

Short Selling

Vanke’s Hong Kong premium over its Shenzhen shares narrowed to 29 percent today. The Hong Kong shares, which have gained 16 percent since they first traded in the city on June 25, were added to a list of securities available for short selling today, according to a statement by the Hong Kong bourse.

Other large-cap companies have seen their premium narrow in the last two weeks. PetroChina Co. (857)’s Hong Kong shares are about 3 percent more expensive than their Shanghai counterparts, down from 14 percent on July 23. Bank of China Ltd.’s H shares trade at a 6.9 percent premium to their A shares, almost half the 12.2 percent gap on July 23.

The Shanghai stock exchange disclosed the October start date for the link in a brokerage training session, according to the National Business Daily. Hong Kong Exchanges & Clearing Ltd. won’t be 100 percent ready before October and regulators may announce the start date two weeks before the launch, bourse Chairman Charles Li said Aug. 6.

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

To contact the editors responsible for this story: Michael Patterson at mpatterson10@bloomberg.net; Sarah McDonald at smcdonald23@bloomberg.net Richard Frost, Allen Wan

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