Two investment banks expect Hong Kong-listed equities to outpace A-shares in the near term after more quality Chinese tech companies went public in the city and attracted foreign investors.
The Zurich-headquartered UBS sees some room for the premium of A-shares over H-shares to narrow from the current rate of 33 percent, which is around the 10-year average but below the recent five-year level, according to James Wang, head of China equity strategy at UBS Investment Bank Research.
UBS also noted that the increases in foreign inflows would benefit H shares more as A-shares only account for 13 percent of MSCI China Index.
The projection was based on the improved diversification and quality of H-shares after the influx of blue-chip mainland-traded stocks and the solid earnings performance of the Hong Kong-listed companies, said Wang. The Hang Seng China Enterprises Index saw the first-quarter earnings up by 7 percent year-on-year, while the Hang Seng Tech Index jumped 38 percent.
While the premium of A-shares over its HK-traded equities will remain at an aggregate level, UBS noted that some companies have recorded discounts of the A-shares to their H shares, if they were considered to be quality core holdings for foreign investors and the liquidity in Hong Kong is higher.
Battery giant CATL once hit HK$343.40 on the second day of its debut in Hong Kong, showing a 13.6 percent premium compared with today’s peak of 279.99 yuan (HK$303.75) apiece in its Shenzhen listing.
Morgan Stanley raised its forecast of the Hang Seng Index to 24,500 points by June 2026, about 3 percent higher than today’s level of around 23,800.
While the US investment bank also lifted its target for mainland benchmark CSI 300 Index to 4,000 points – 2.1 percent higher from today’s close of 3,916 – Morgan Stanley estimates that A-shares markets would continuously underperform the offshore-traded stocks in the short run.
Morgan Stanley also sees the higher corporate earnings and valuations, improved economic outlook, slight appreciation of the Chinese yuan against the US dollar, and emerging mainland tech leaders as key growth drivers.
STAFF REPORTER
