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Thursday, July 21, 2016, 11:16

Hong Kong-Shanghai stock valuation gap narrows

By Bloomberg

Hong Kong’s dual listed stocks traded at the narrowest discount to their Chinese mainland counterparts since October as cheaper valuations in the city lured investors.

The Hang Seng China AH Premium Index fell 0.7 percent, signaling Hong Kong traded equities were 22 percent cheaper than those in Shanghai or Shenzhen.

A gauge of mainland shares in Hong Kong rose, while the Shanghai Composite Index dropped for a third day. Huaneng Power International Inc advanced the most in almost two months in HongKong, while its A shares retreated. The MSCI Hong Kong Index was poised to enter a bull market.

"Valuations of H shares are a lot cheaper than mainland equities, and have priced in a lot of pessimism over China’s economic outlook,” said Wu Kan, a fund manager at JK Life Insurance Co in Shanghai. “Also, shares in Hong Kong more closely track US stocks, which are trading near record highs."

The Hang Seng China Enterprises Index is valued at 7.4 times its projected 12 month earnings, 43 percent below that for the Shanghai Composite, according to data compiled by Bloomberg.

While China’s economy grew more than expected in the second quarter, a credit surge spurred concern about the sustainability of the debt-fueled expansion. The S&P 500 Index climbed to a record on Monday.

The Shanghai Composite retreated 0.3 percent at the close. The MSCI Hong Kong Index added 1 percent, taking its advance from a three-year low on Jan 21 to more than 20 percent. The Hang Seng Index added 0.9 percent, edging closer to a bull market as well.

Huaneng Power added 2.5 percent in Hong Kong and Ping An Insurance Group Co advanced 1.4 percent, while the yuan denominated shares of both companies slipped. Great Wall Motor Co and China Long yuan Power Group Corp climbed at least 3.8 percent, the most on the H share index.

In mainland trading, a measure tracking material producers paced declines among industry groups.

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