For those unfamiliar with China's markets, Chinese companies may have Shanghai listed trading as well as Hong Kong listed trading. A-shares are listed on Shanghai exchanges and are largely available only to domestic investors. H-shares are listed on the Hong Kong Stock Exchange; they are available mainly to non-chinese investors (like QDII, International investors). But in both case, the origion of business should be in mainland China.
There is a huge price difference at which a mainland company trade in both the exchanges, and intrestingly there is no channel to arbitrage. A-shares trade at a huge premium over H-share counterparts (or even what is being quoted in London exchanges). This is due to huge imbalance between supply and demand of high quality stocks in China. High ristrictions/regulations combined with high demand from newfound investible wealth, is pushing premiums up. More possible reason for the price difference is summarized in below graph:
To track this, there is an index called Hang Seng China AH Premium Index" which measures the the spread between the A-shares and H-shares of dual-listed companies domiciled in mainland China. This means that A-shares as a group are currently trading at a premium of about 80% over the H-shares and that at one point they were trading at a premium of more than 100% !!
The spread is going up constantly, some reasons could be that China is a closed market wheres Hong Kong is a fiercly open economy, thus it reacts more sharply to international economic developments. A recent credit crisis left many markets crashing, impacting HK markets as well. Also HK currency being pegged to US dollars, it took a greater hit from investors!
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