Hong Kong-Shanghai Valuation Gap Narrows to Least in Five Months

The valuation difference between Chinese shares traded in Hong Kong and Shanghai narrowed to the smallest in five months as foreign investors turned more bullish on the country’s equities.

The Hang Seng China AH Premium Index fell 1.6 percent to 129.27, the lowest since Oct. 27. A gauge of Chinese stocks in Hong Kong rallied 1.3 percent, compared with a 0.7 percent loss by the Shanghai Composite Index. While dual-listed equities are still 29 percent more expensive across the border from Hong Kong, that’s down from 47 percent in January.

The Hang Seng China Enterprises Index has rebounded 23 percent since this year’s low and entered a bull market last month on signs the nation’s economy and currency are stabilizing. Concerns about a depreciating yuan and capital outflows helped drag the gauge of 40 members to its lowest level in about seven years on Feb. 12, sending valuations to record lows.

"Investors are increasingly finding Hong Kong equities attractive," said Castor Pang, head of research at Core-Pacific Yamaichi Hong Kong. "The risk-return ratio of Hong Kong stocks is reasonable and the valuation gap is likely to narrow further."

China Oilfield Services Ltd., PetroChina Co. and China Petroleum & Chemical Corp. led gains in the city on Thursday after oil rebounded, while technology and industrial companies weighed on the Shanghai benchmark gauge.

A plunge of as much as 4.5 percent in the Shanghai Composite on Wednesday has failed to dent foreign investors’ newfound enthusiasm for Chinese shares. Brokers struggled to explain the reason behind the sudden selloff, which isn’t an unusual occurrence on the mainland where trading dominated by individual investors.

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