Previously mainland investors were paying 35% more for A-shares than Hong Kong investors were paying for H-shares in the same companies, but this dropped to 28% on 8 April.
“It’s an exaggerated effect; some investors look at the change in the rules and think this gap is likely to close, so they are buying Hong Kong stocks early to get the discount,” he said.
“This is the first step in the gradual relaxation of capital controls in China, and the end game for China is to release these capital controls.”
Schroders Asian equities team said the rising premium of A-shares over H-shares also drove China’s onshore capital south. “Chinese investors were increasingly looking to capitalise on the price gaps between onshore and offshore markets.
“With the A-share market still rising in spite of weak economic data and poor company earnings in China, H-shares are becoming an increasingly attractive alternative.”
Head of product management in Fidelity Worldwide Investments’ Asian division, Matthew Sutherland, said the team is “not chasing momentum”.
“We are continuing to find such opportunities in both the onshore and offshore China market.
“Where stocks have run up significantly and valuations have become stretched there has been a small amount of rotation into cheaper opportunities. But for the most part, our managers are not trading, but are staying calm and continuing to do what we do best – investing fundamentally.”
