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Discount in China stocks listed in Hong Kong
13 Jan 2022 (308 views)  

Many stocks of big companies in China are listed in Hong Kong and in Shanghai. The HK price is often at an attractive discount (of 25% to 80%) compared to the Shanghai price. See this webpage for the difference. 

I have often been asked - why is there a difference in the prices? Is it possible to buy the stock in HK and sell them in Shanghai? This is called arbitrage. 

Put it in any way. Why can't the investor in China buy the stock in Hong Kong, instead of Shanghai?

The answer is - capital control. The investor in China cannot buy the stock in Hong Kong because he needs to get approval to move the funds to Hong Kong from China. This approval is not given. 

Can a foreign investor (e.g. TKL) buy the stock in Hong Kong and sell them in China? It is not possible. They are considered as "different stocks", as they are listed in separate exchanges.

Why are the foreign investors willing to sell the stock at a lower price in Hong Kong compared to the price in Shanghai? 

The answer is - it depends on supply and demand. For the past two years, the foreign investors sell their China stocks in Hong Kong to invest them in America. This has resulted in inflated prices in America (average price earning of 28 times) compared to depressed prices in Hong Kong (average price earning of 7 times).

Sentiment will change. Money will flow from overvalued American stocks to undervalued China stocks. I expect the China stocks to move up considerably when it happens.

Note - this is a personal opinion. It is not investment advice. 

Tan Kin Lian

Discount in China stocks listed in Hong Kong
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Many stocks of big companies in China are listed in Hong Kong and in Shanghai. The HK price is often at an attractive discount (of 25% to 80%) compared to the Shanghai price. See this webpage for the difference. 

I have often been asked - why is there a difference in the prices? Is it possible to buy the stock in HK and sell them in Shanghai? This is called arbitrage. 

Put it in any way. Why can't the investor in China buy the stock in Hong Kong, instead of Shanghai?

The answer is - capital control. The investor in China cannot buy the stock in Hong Kong because he needs to get approval to move the funds to Hong Kong from China. This approval is not given. 

Can a foreign investor (e.g. TKL) buy the stock in Hong Kong and sell them in China? It is not possible. They are considered as "different stocks", as they are listed in separate exchanges.

Why are the foreign investors willing to sell the stock at a lower price in Hong Kong compared to the price in Shanghai? 

The answer is - it depends on supply and demand. For the past two years, the foreign investors sell their China stocks in Hong Kong to invest them in America. This has resulted in inflated prices in America (average price earning of 28 times) compared to depressed prices in Hong Kong (average price earning of 7 times).

Sentiment will change. Money will flow from overvalued American stocks to undervalued China stocks. I expect the China stocks to move up considerably when it happens.

Note - this is a personal opinion. It is not investment advice. 

Tan Kin Lian