Nobody really knows why China’s domestic A-shares trade at a premium, and have now for a very long time, to exactly the same shares listed in Hong Kong in H-share form. [A coffee, at your expense of course, and you can have my not very informed two-pennyworth at your leisure]
Taking the approach, (sort of) well they just do, Xu Cheng (et. al.) of the City University in Hong Kong wondered if instead anything meaningful could be said about the relationship between the two? Especially in the context of easy to observe changes to the political environment of a stock’s area of operation?
Spoiler alert; yes, politics on the home turf, especially when the situation becomes more uncertain, closes the gap between the two i.e. the A-share valuation falls.
This is valuable information for anyone, and there are a few, who try and trade these relationships and they’re invited to review the paper in full via the following link Political Uncertainty and A-H Share Premium.
What the rest of us though would really, really like to know, once and for all, is why the relationship persists at all?
Happy Sunday.