- "This demonstrates that these two markets are largely driven by different pools of investors who have sharply different preferences from time to time," writes BAML, commenting on the widening valuation gap between stocks in Shanghai and Hong Kong since the trading link between the two markets was created last November. The Hang Seng China AH Premium Index closed at 133.8 today vs. a previous all-time high of 141.4 in October 2011.
- The conventional wisdom said the gap was supposed to narrow.
- Shanghai is dominated by retail investors, with those accounts making up 70-80% of total AUM vs. 30-40% in Hong Kong. And retail investors are an enthusiastic lot at the moment, opening up a record 1.1M accounts last week.
- "Due to the lack of urge to arbitrage by these two pools of investors, we suspect that the current high premium itself will unlikely force a reversion to the mean. In another word. these two markets will probably continue to dance to different tunes for a while." says BAML.
- Since the start of 2014, the DB China A-Shares Fund (NYSEARCA:ASHR) is up 65.7% vs. the iShares China Large-Cap ETF (NYSEARCA:FXI) and the iShares MSCI China ETF (NYSEARCA:MCHI), up 14.8% and 11.7%, respectively.
- Source: Barron's
- ETFs: FXI, EWH, PGJ, YINN, GXC, FXP, ASHR, YANG, MCHI, PEK, XPP, YAO, YXI, CHXF, FCA, CN, EWHS, FCHI, ASHS, CNXT, CHNA, KBA, FHK, AFTY