Skip Navigation Links
Investing in China stocks in Hong Kong
20 Mar 2022 (398 views)  

Someone asked me. 

If he buys China stocks in Hong Kong, it will be paid in HKD which is pegged to USD. If USD falls in the future, would it affect the stocks that are in HKD? Is it better to invest in China stocks in Shanghai in CNY which is likely to be stronger than USD?

I replied as follows:

It is not certain that USD will depreciate against CNY. The reverse may happen, i.e. CNY may depreciate against USD.

It is also not certain that HKD will continue to be pegged against USD. If USD weakens, HKD may move off the peg and be pegged against CNY instead.

Even if HKD remains pegged to the USD and the USD weakens, it is likely that the price of the China stocks in Hong Kong will move up proportionately to any drop in the HKD.

For example, if the HKD drop 10% against CNY, the price of China stocks quoted in Hong Kong will likely move up 10% to compensate for the depreciation in the currency.

The reverse may also happen, i.e. if the HKD appreciate against the CNY, the price of the stocks quoted in HKD will drop proportionately.

There is, however, one important feature that makes it attractive to invest in China stocks quoted in Hong Kong. At the current exchange rates between HKD and CNY, the price of the China stocks quoted in Hong Kong show a discount of between 20% to 80% of the price for the same stocks quoted in Shanghai. 

This discount is a temporary feature, and may disappear over time. The discount can be seen in this webpage

As of 20 Mar 2022, the discount for the First Tractor is 75.31%. This compares the price of 3.48 HKD and 11.43 CNY.  There is a discount because investors in China have to buy the stock in China, due to currency control. They pay a higher price compared to the same stock that is listed in Hong Kong. 

Tan Kin Lian

 


Investing in China stocks in Hong Kong
[Back] [Print]


Someone asked me. 

If he buys China stocks in Hong Kong, it will be paid in HKD which is pegged to USD. If USD falls in the future, would it affect the stocks that are in HKD? Is it better to invest in China stocks in Shanghai in CNY which is likely to be stronger than USD?

I replied as follows:

It is not certain that USD will depreciate against CNY. The reverse may happen, i.e. CNY may depreciate against USD.

It is also not certain that HKD will continue to be pegged against USD. If USD weakens, HKD may move off the peg and be pegged against CNY instead.

Even if HKD remains pegged to the USD and the USD weakens, it is likely that the price of the China stocks in Hong Kong will move up proportionately to any drop in the HKD.

For example, if the HKD drop 10% against CNY, the price of China stocks quoted in Hong Kong will likely move up 10% to compensate for the depreciation in the currency.

The reverse may also happen, i.e. if the HKD appreciate against the CNY, the price of the stocks quoted in HKD will drop proportionately.

There is, however, one important feature that makes it attractive to invest in China stocks quoted in Hong Kong. At the current exchange rates between HKD and CNY, the price of the China stocks quoted in Hong Kong show a discount of between 20% to 80% of the price for the same stocks quoted in Shanghai. 

This discount is a temporary feature, and may disappear over time. The discount can be seen in this webpage

As of 20 Mar 2022, the discount for the First Tractor is 75.31%. This compares the price of 3.48 HKD and 11.43 CNY.  There is a discount because investors in China have to buy the stock in China, due to currency control. They pay a higher price compared to the same stock that is listed in Hong Kong. 

Tan Kin Lian