Sifting The Price Difference Between A Shares And H Shares (AH Premium) For Value Stocks


More than 80% of China's stock market is owned by retail investors with little experience.

This leads to frequent mispricing and interesting opportunities for value investors.

A first approach to Chinese stocks could be looking at companies that trade in Shanghai (A shares) and Hong Kong (H shares). Often they trade at huge differences in value.


Participants in the Chinese stock market are mostly retail investors with a casino mentality. At the same time, value investing is still relatively unknown in China. This leads often to situations where stock prices are detached from the intrinsic value of companies. A demonstration of the irrationality of the Chinese market is the AH premium. It is also a good place to turn some pages and start looking for opportunities in China.

The AH premium

As a retail investor outside of China, until November 2014, the only way to invest in China was by buying companies listed in Hong Kong (H-shares). Then came along the Shanghai-Hong Kong stock market connect and later the Shenzhen-Hong Kong stock market connect. Both connections allow international investors to buy stocks listed in China mainland (so-called A shares), while Chinese investors gain access to Hong Kong stocks.

95 companies are listed both in Hong Kong as H-shares and at the same time in Shanghai as A shares. One would think that once mainland stock exchanges are connected with Hong Kong, there is no big difference in price between A stocks and H stocks of the same company. In reality, the opposite has occurred: The Hang Seng China AH Premium, which measures the premium of A shares over H shares surged after the connection has been established.


The index takes the value 100 in case A shares and H shares are valued the same. Anything above means that A shares are priced higher than H shares, and vice versa, a value of less than 100 would mean that H shares are cheaper than A shares. Currently, the index is at around 120, which means that H shares are roughly 20% cheaper than A shares on average.

Reasons for the AH premium to occur

There has been some research on the reason for the difference of this abnormality, but most reports don't go much further than simply ascertaining that it exists and that there is no quantitative explanation to it. The consensus among traders is that there are several phenomena at play:

  1. International investors don't have the possibility to short A stocks, which make traditional convergence trades impossible.
  2. Mainland investors and international investors are exposed to different information regarding China in general, and therefore value companies differently because they have different viewpoints about the future.
  3. Paradoxically, many retail investors from the mainland see Hong Kong as a type of "far west" marketplace since it is not as tightly controlled as the market for A shares. Listing requirements, for example, are stricter in Shanghai. Also, when a stock starts sliding significantly trading is suspended. In addition, Chinese retail investors have no experience with stocks other than A shares. Trading in Hong Kong typically requires some additional paperwork as well.
  4. On the other hand, international investors are suspicious about Chinese firms, their accounting practices, and their often state-controlled management.

While the 20% average AH premium won't go away in the near term, when the price difference is as large as 78% for particular A and H shares of the exact same company, the gap has to narrow in some way: Either the A shares go down or the H shares go up. By doing a throughout value analysis, investors are able to understand in which cases the H shares are undervalued vs. those cases where A shares are overvalued.

Potentially interesting companies subject to AH premium

The following list is based on the data from Aastocks and has the aim of giving a first orientation. A table containing real-time data and stock prices can be found here.

SA tickers Name H share A share P/E ratio Div. Yield % Price difference H vs. A % Industry
(OTC:CHBJF) (OTCPK:CHCJY) CITIC BANK 00998.HK 601998.SH 5 5 -27.39% Bank
CEB BANK 06818.HK 601818.SH 5 3.01 -17.10% Bank
MINSHENG BANK 01988.HK 600016.SH 5 4.2 -14.84% Bank
GREATWALL MOTOR 02333.HK 601633.SH 6 4.8 -40.44% Automotive vehicles and components
BANKCOMM 03328.HK 601328.SH 6 5.2 -11.65% Bank
(OTCPK:IDCBF) (OTCPK:IDCBY) ICBC 01398.HK 601398.SH 6 5.2 -6.75% Bank
BANK OF CHINA 03988.HK 601988.SH 6 5.1 -6.62% Bank
(OTCPK:CICHF) (OTCPK:CICHY) CCB 00939.HK 601939.SH 6 5 -5.50% Bank
(OTCPK:ACGBF) (OTCPK:ACGBY) ABC 01288.HK 601288.SH 6 5.4 -5.22% Bank
(NYSE:SHI) SHANGHAI PECHEM 00338.HK 600688.SH 7 6 -40.22% Petrochemicals
(OTCPK:CIHHF) (OTCPK:CIHKY) CM BANK 03968.HK 600036.SH 7.2 4.1 -6.03% Bank
(OTCPK:CICOF) COSCO SHIP HOLD 01919.HK 601919.SH 8 5 -45.37% Container and oil shipment
(OTCPK:CSDXF) COSCO SHIP ENGY 01138.HK 600026.SH 8 5 -43.33% Container and oil shipment
(NYSE:HNP) (OTCPK:HUNGF) HUANENG POWER 00902.HK 600011.SH 8 6.2 -37.76% Electric Power
CHENMING PAPER 01812.HK 000488.SZ 8 7.6 -33.14% Paper
(OTCPK:CCCGF) (OTCPK:CCCGY) CHINA COMM CONS 01800.HK 601800.SH 9 2.7 -45.73% Infrastructure construction
HUADIAN POWER 01071.HK 600027.SH 9 4.7 -42.44% Thermal and electricity power, coal
(OTCPK:SEXHF) SICHUAN EXPRESS 00107.HK 601107.SH 9 3.7 -40.31% Construction and management of highways
(NYSE:ZNH) (OTCPK:CHKIF) CHINA SOUTH AIR 01055.HK 600029.SH 9 2.1 -39.95% Airline
(OTC:XJNGF) (OTC:XNJJY) GOLDWIND 02208.HK 002202.SZ 9 2 -31.99% Wind power turbines and equipment
(OTC:CWYCF) (OTCPK:CWYCY) CHINA RAIL CONS 01186.HK 601186.SH 9 1.6 -25.42% Infrastructure construction (railways)
(OTC:CHVKF) (OTC:CVKEY) CHINA VANKE 02202.HK 000002.SZ 9 4.5 -8.85% Property development and management
(OTCPK:AUHEF) (OTC:AUHEY) ANHUI EXPRESSWAY 00995.HK 600012.SH 10 4.2 -60.63% Highway (toll) operator
MCC 01618.HK 601618.SH 10 2.4 -48.32% Construction
CGS 06881.HK 601881.SH 11 2.6 -49.21% Financial services (Brokerage, advisory, etc)
(NYSE:CEA) (OTC:CHEAF) CHINA EAST AIR 00670.HK 600115.SH 11 2.6 -43.95% Airline
(AIRCAF) (OTCPK:AIRYY) AIR CHINA 00753.HK 601111.SH 11 1.7 -34.12% Airline
(OTC:CRWOF) (OTCPK:CRWOY) CHINA RAILWAY 00390.HK 601390.SH 11 1.5 -34.11% Infrastructure construction (railways)
(OTCPK:PIAIF) (OTCPK:PNGAY) PING AN 02318.HK 601318.SH 11 1.9 2.19% Insurance
XINHUA WINSHARE 00811.HK 601811.SH 11.08 9.85 -63.08% Publishing, book sales, education;
(OTCPK:BEIJF) BEIJING N STAR 00588.HK 601588.SH 11.3 2.2 -53.05% Property development and management
GAC GROUP 02238.HK 601238.SH 12 2.6 -55.12% Automotive vehicles and components
CMSC 06099.HK 600999.SH 12 1.7 -33.55% Investment Bank
(OTC:HISEF) (OTC:HNKLY) HISENSE KELON 00921.HK 000921.SZ 12 3.1 -31.65% Household appliances (refrigerators etc)
(OTC:SHZNF) (OTCPK:SHZNY) SHENZHEN EXPRESS 00548.HK 600548.SH 12 3.4 -24.95% Highway (toll) operator
EB SECURITIES 06178.HK 601788.SH 13 2 -32.15% Financial services platform
(OTCPK:CUAEF) (OTCPK:CSUAY) CHINA SHENHUA 01088.HK 601088.SH 13 18.5 -18.51% Coal and power
GF SEC 01776.HK 000776.SZ 13 2.5 -14.08% Financial services
(OTCPK:BBMPY) BBMG 02009.HK 601992.SH 14 1.3 -55.84% Capital markets service provider
(OTCPK:MAANF) MAANSHAN IRON 00323.HK 600808.SH 14 - -27.92% Steel
(OTC:ANGGF) (OTCPK:ANGGY) ANGANG STEEL 00347.HK 000898.SZ 14 1.5 -15.13% Steel
SINOPEC CORP 00386.HK 600028.SH 14 4.6 -3.46% Oil and Gas
(OTCPK:AHCHF) (OTCPK:AHCHY) ANHUI CONCH 00914.HK 600585.SH 14 2.2 14.51% Construction materials
(OTCPK:JEXYY) (OTCPK:JEXYF) JIANGSU EXPRESS 00177.HK 600377.SH 14.8 4.2 6.46% Highway (toll) operator
TIANJIN CAPITAL 01065.HK 600874.SH 15 2 -75.87% Water supply and sewage water treatment
DZUG 01635.HK 600635.SH 15 1.9 -49.26% Shanghai gas utility
SH PHARMA 02607.HK 601607.SH 15 2 -25.36% Pharma
HTSC 06886.HK 601688.SH 15 3.9 -21.80% Financial services
CC SECURITIES 01375.HK 601375.SH 16 6.2 -65.16% Financial services (Brokerage, advisory, etc)
DFZQ 03958.HK 600958.SH 16 2.3 -53.67% Capital markets service provider
CRRC 01766.HK 601766.SH 16 3.2 -33.25% Trains
(OTCPK:HAITY) (OTC:HTNGF) HAITONG SEC 06837.HK 600837.SH 16 2 -22.38% Financial services
(OTC:CIIHF) (OTCPK:CIIHY) CITIC SEC 06030.HK 600030.SH 16 2.5 -11.07% Financial services
FIRST TRACTOR 00038.HK 601038.SH 16.1 1.6 -61.42% Agricultural machinery
(NYSE:YZC) (OTCPK:YZCHF) YANZHOU COAL 01171.HK 600188.SH 16.4 2.15 -49.71% Coal mining
(OTC:SZDEF) DONGJIANG ENV 00895.HK 002672.SZ 18 1 -41.42% Recycling
(OTCPK:GZPHF) (OTCPK:GZPHY) BAIYUNSHAN PH 00874.HK 600332.SH 18 3 -29.72% Pharma
(OTCPK:WEICF) (OTCPK:WEICY) WEICHAI POWER 02338.HK 000338.SZ 18 3.2 -1.09% Automotive, diesel engines
CPIC 02601.HK 601601.SH 19 2.8 -7.34% Insurance
(OTC:FYGGY) FUYAO GLASS 03606.HK 600660.SH 20 2.9 9.36% Automotive components (glass)
(OTCPK:BYDDF) (OTCPK:BYDDY) BYD COMPANY 01211.HK 002594.SZ 20.8 1.4 -19.64% Automotive vehicles, components, batteries
SH ELECTRIC 02727.HK 601727.SH 21 - -62.10% Heavy equipment, mainly for thermal and nuclear power
NCI 01336.HK 601336.SH 21 1.4 -23.47% Insurance
LIVZON PHARMA 01513.HK 000513.SZ 22 1.1 -27.19% Pharma
FOSUN PHARMA 02196.HK 600196.SH 22 1.3 -10.35% Pharma and medical equipment
(OTC:SHNXY) SHANDONG XINHUA 00719.HK 000756.SZ 23 - -58.35% Pharmaceutical ingredients and chemicals
(NYSE:GSH) (OTCPK:GNGYF) GUANGSHEN RAIL 00525.HK 601333.SH 23 2 -18.94% Railway operator
(OTCPK:CCOZF) (OTCPK:CCOZY) CHINA COAL 01898.HK 601898.SH 24 1.2 -42.99% Coal mining
(OTCPK:ZIJMF) (OTCPK:ZIJMY) ZIJIN MINING 02899.HK 601899.SH 26 0 -28.45% Precious metal mining and refinery
(OTCPK:DLPTF) DALIAN PORT 02880.HK 601880.SH 31 1.25 -60.15% Harbour services (terminal operation)
(NYSE:LFC) (OTCPK:CILJF) CHINA LIFE 02628.HK 601628.SH 31 1.2 -19.17% Life insurance
(OTC:ZHHJY) ZHEJIANG SHIBAO 01057.HK 002703.SZ 34 1.5 -74.44% Automotive (supplier)
NANJING PANDA 00553.HK 600775.SH 34 1.6 -62.88% Electronics (equipment, parts, consumer)
CMOC 03993.HK 603993.SH 34.3 1.7 -52.34% Non ferrous metal mining
(OTCPK:TSGTF) (OTCPK:TSGTY) TSINGTAO BREW 00168.HK 600600.SH 39 1.2 -3.37% Brewery
(OTC:JIAXF) (OTCPK:JIXAY) JIANGXI COPPER 00358.HK 600362.SH 43 1.4 -34.36% Copper mining and refining
(OTC:CITAF) (OTC:CITAY) COSCO SHIP DEV 02866.HK 601866.SH 50 - -61.91% Container shipments
CIMC 02039.HK 000039.SZ 81 0.5 -25.83% Machinery and equipment for manufacturing
ZMJ 00564.HK 601717.SH 103 0.3 -46.29% Mining machinery
(NYSE:PTR) PETROCHINA 00857.HK 601857.SH 119 1.2 -37.17% Oil and gas
CHALCO 02600.HK 601600.SH 161 - -28.13% Aluminium refinery
(OTC:LUOYF) LUOYANG GLASS 01108.HK 600876.SH 230 - -78.53% Glass production for construction
COMEC 00317.HK 600685.SH 250 0.13 -58.47% Shipbuilding
(OTCPK:SHANF) (OTC:SHANY) SHANDONG MOLONG 00568.HK 002490.SZ - - -77.34% Machinery for oil extraction
JINGCHENG MAC 00187.HK 600860.SH - - -71.20% Machinery and equipment (gas cylinders)
NE ELECTRIC 00042.HK 000585.SZ - - -71.17% Power transmission equipment
KUNMING MACHINE 00300.HK 600806.SH - - -65.72% Machine tools, turbo machines
SINOPEC SSC 01033.HK 600871.SH - - -62.72% Chemical fiber
CHONGQING IRON 01053.HK 601005.SH - - -56.73% Production of coke coal, iron, steel, energy
DATANG POWER 00991.HK 601991.SH - - -56.33% Thermal and electricity power and plants
(OTCPK:CHOLF) (OTCPK:CHOLY) CHINA OILFIELD 02883.HK 601808.SH - 0.8 -45.19% Oil and Gas
(OTC:DONGY) DONGFANG ELEC 01072.HK 600875.SH - - -37.47% Thermal and wind power plants equipment
(OTCPK:ZLIOY) (OTCPK:ZLIOF) ZOOMLION 01157.HK 000157.SZ - 4.8 -26.88% Construction and agricultural machinery
(OTCPK:ZTCOF) (OTCPK:ZTCOY) ZTE 00763.HK 000063.SZ - - -25.72% Telecom and networking equipment
GTJA 02611.HK 601211.SH - - -22.60% Financial services

Source: Author, based on data from Aastocks, 5.6.2017

There is no general pattern between valuation in terms of price over earnings and the AH premium, but there are some interesting observations to make. First, banks are cheap in terms of valuation, and also the premium is low. In a recent article about Bank of China (OTCPK:BACHF) (OTCPK:BACHY), I pointed out that the company was undervalued, but that the impact of China's most recent efforts to deleverage its economy is uncertain when it comes to the impact it is going to have on banks.

On the other side of the spectrum, one can observe that the premium is particularly high for companies that are making losses (mostly those positions in the table without P/E ratio) or are in troubled industries such as steel manufacturing. These companies are suffering from overcapacity and lower growth rates of the Chinese economy. Companies linked to the production of power using coal are also under fire as China is busy tackling its smog problems and pollution in general.


Based on the P/E ratio, dividend yield, and the considerations just made there are a couple of companies subject to the AH premium. I am going to have a closer look by publishing through and through analyses on Seeking Alpha. These are Xinhua Winshare (OTC:SHXWY) (OTCPK:SHXWF), Chenming Paper, Tianjin Capital (OTC:TNJIF) (OTCPK:TCEPY) and CRRC (OTC:CRCCY), even though I find the latter interesting for its innovative products and its almost monopoly-like position in a growing market rather than price and dividend.

I also hope that by then the recent slide in the Chinese stock markets will have bottomed, which should offer an interesting buying opportunity for investors that want to diversify away from overpriced Western stock markets.

Disclaimer: The article reflects my personal opinion and reality to the best of my knowledge, but I can't guarantee for content or outcomes. Please do your own research before making any investment decisions. Be aware that investing in a single stock may lead to complete loss of capital.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.