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Shanghai Rally Widens Valuation Premium to 5-Year High

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Chinese stocks in Shanghai are poised for a temporary retreat after their valuation premium over Hong Kong-traded counterparts surged to a more than five-year high, according to Janney Montgomery Scott LLC.

The Shanghai Composite Index, comprised mainly of yuan-denominated A shares, is valued at about 12 times estimated earnings after surging 34 percent in the past two months. That’s 54 percent more expensive than the Hang Seng China Enterprises Index of mainland companies listed in Hong Kong and close to the widest gap since July 2009, according to data compiled by Bloomberg.