Posted in Finance, Accounting and Economics Terms, Total Reads: 322
Chinese companies whose origin of business is in Mainland china, in general have listings both in Shanghai exchange as well as Hong-Kong exchange. Thus eventually they are classified into two types. The first type: A-shares are available for domestic investors only and listed on Shanghai exchange while the second type called as H-shares are listed on Hong Kong exchange and are available to non-domestic investors (mostly foreign investors).
Due to huge government regulations and restrictions for investing in main land China, coupled with rising wealth of Chinese is creating huge price discrepancy due to huge supply-demand mismatch for quality stocks of china. This is pushing the premiums upwards and leading to a price difference of same stock between the exchanges.
Hang Seng AH premium Index measures the difference between A-shares and H-shares of dual listed companies with origins in mainland China. A-shares have traded historically at very high premiums of up to 80-100% too.
Since Hong Kong is more connected to the Global markets and its currency is also pegged to the US dollar, H-shares reacts fiercely to global developments.