Stocks News
- Govt. studying joint trade in A, H shares
Date: 9-Mar-2007 Sources: (Shenzhen Daily)
THE Central Government is considering a proposal by Hong Kong to establish a system for arbitrage trade between A and H shares, the foreign exchange regulator said Thursday.
Many firms with A shares on the mainland command premiums of 15 to 50 percent over their corresponding H shares listed in Hong Kong, which is a sign to some investors that the mainland markets have become overvalued.
On a single day last week, Shanghai's benchmark index plunged nearly 9 percent in its biggest drop for a decade, unsettling markets globally.
'We are now studying this possibility,'Hu Xiaolian, director of the State Administration of Foreign Exchange, said.
'It's a measure to develop capital markets,'Hu added, without elaborating on what form such a system might take or when it might be introduced.
It was the first time a top official had said the government was considering action to bring mainland companies' domestic A shares, listed in Shanghai or Shenzhen, more closely in line with their H shares, listed in Hong Kong. There are 39 dual-listed firms.
A and H shares represent the same amount of equity, but capital controls mean they are not exchangeable. This has let A-share premiums balloon over the past several months as the domestic market has soared to all-time highs.
Arbitrage, trading to profit from price differences in shares of the same firm, might push down A shares as their valuations converged with those of H shares.
Hong Kong officials have urged the Central Government to cut the premiums through a joint trading mechanism, arguing this would help avert the growth of a 'bubble?in prices. Hong Kong Financial Secretary Henry Tang made the suggestion in a visit to Shanghai last month.
Fang Xinghai, deputy director of the financial services office of the Shanghai Municipal Government, later endorsed the idea in an interview with London-based Financial Times.
The domestic stock market reacted little to Hu's remarks Thursday, partly because any change to the A and H-share structure would involve complex technical and legal issues and probably take many months to discuss and implement.
While analysts see closer links between the domestic market and Hong Kong as inevitable in the long term, many think authorities are unlikely this year to make radical reforms that could threaten plans to list big State-owned firms in Shanghai.
'I don't see why the government would do something like this right now,'said Jing Ulrich, managing director and chairman of China Equities at JPMorgan in Hong Kong.
'We're not expecting H shares to jump 80 percent to meet where the A-share valuations are. It would be a severe correction in the A share market, certainly not in anyone's interest. At this point, all these arguments are academic.'
Zhang Yanbin, analyst at Kinghing Securities in Shanghai, said the domestic stock market remained bullish and had started to lead Hong Kong, so arbitrage opportunities would have little effect in pulling domestic stocks down toward Hong Kong's levels.
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