Hong Kong-Shanghai Stock Valuation Gap at Lowest Since October

Updated on
  • H shares climb on lower prices, advance in U.S. equities
  • MSCI Hong Kong is up 21% since Jan. 21, entering bull market

Hong Kong’s dual-listed stocks traded at the narrowest discount to their mainland Chinese counterparts since October as cheaper valuations in the city lured investors.

The Hang Seng China AH Premium Index fell 0.8 percent, signaling Hong Kong-traded equities were 22 percent cheaper than those in Shanghai or Shenzhen. A gauge of Chinese shares in Hong Kong rose, while the Shanghai Composite Index dropped for a third day. Huaneng Power International Inc. advanced the most in almost two months in Hong Kong, while its A shares retreated. The MSCI Hong Kong Index entered a bull market.

“Valuations on H shares are a lot cheaper than mainland equities, and have priced in a lot of pessimism over China’s economic outlook,” said Wu Kan, a fund manager at JK Life Insurance Co. in Shanghai. “Also, shares in Hong Kong more closely track U.S. stocks, which are trading near record highs.”

The Hang Seng China Enterprises Index is valued at 7.4 times its projected 12-month earnings, 43 percent below that for the Shanghai Composite, according to data compiled by Bloomberg. While China’s economy grew more than expected in the second quarter, a credit surge spurred concern about the sustainability of the debt-fueled expansion. The S&P 500 Index climbed to a record on Monday.

Bull Market

The H share index climbed 0.4 percent to 9,023.11 at the close in Hong Kong, while the Shanghai Composite retreated 0.3 percent. The MSCI Hong Kong Index added 1.1 percent, taking its advance from a three-year low on Jan. 21 to 21 percent. The Hang Seng Index added 1 percent, edging closer to a bull market as well.

Huaneng Power added 3.1 percent in Hong Kong and Ping An Insurance Group Co. advanced 1.1 percent, while the yuan-denominated shares of both companies slipped. Great Wall Motor Co. and China Longyuan Power Group Corp. climbed at least 3.6 percent, the most on the H-share index.

In mainland trading, a measure tracking material producers paced declines among industry groups. Jiangxi Copper Co. retreated 3.2 percent, the most in more than two months, after data showing China’s output of the metal rose 7.6 percent in the first half, underscoring concern supply continues to eclipse demand.

— With assistance by Shidong Zhang

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