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Same stock different prices

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I was thinking about buying some ICBC or BoC shares in Shanghai, but the price difference of the Shanghai and Hongkong (or ADRs in NYSE) kept me from pulling the trigger. Since one Yuan is roughly worth one HKD, why would I pay premium for the A shares if I can get H Shares (or the equivalent US ADRs) for a discount?

Unless the Yuan depreciates (relative to HKD and USD) significantly (it’s possible but unlikely), buying A shares does not make sense to me.

ICBC: 601398 (Shanghai) CNY 6.80; 1398 (Hongkong) HKD 4.80

Bank of China: 601988 (Shanghai) CNY 5.80; 3988 (Hongkong) HKD 3.80

China Life: 601628 (Shanghai) CNY 48.00; 2628 (Hongkong) HKD 30.00; LFC (NYSE) USD 57.41

Note one share of LFC (ADR in NYSE) is worth 15 shares of 2628.HK, the price of 2628.HK is the same as LFC, if we consider this units conversion and HKD/USD conversion.

The main reason for the price difference is the supply and demand: Chinese people have lots of free money (in CNY), but they can only invest inside China. The China capital market has grown significantly, but it still could not meet the demand from flood of domestic investors.

5 replies on “Same stock different prices”

do you think the chinese stock market will be suffer when the people are allowed to invest outside of China.
i do see there is little correlation the chinese market with the wallstreet.
Sean

I think that will have a short term effect. Long term I’m bullish on China economy growth and capital market, the Yuan, etc.

Yes I agree with you “little correlation the chinese market with the wallstreet” at this time. Things are changing in this direction as you may have seen the “Feb 27 Chinese drop”.

There is this thing called “QDII”, stands for qualified domestic institutional investors, by which individual investors can invest overseas. My understanding is, they buy the QDII products offered by the banks, brokage firms etc. The banks and brokage firms in turn buy oversea stocks using that money.

This is similar to QFII, stands for qualified foreign instituational investors, by which oversea investors (such as Jim Rogers) can buy Chinese domestic stocks. Of course in both cases there is a quota.

I really don’t know when the oversea market will be full open to Chinese, one obvious pre-requisite is the “free exchange of Chinese Yuan”. I think it will take at least 2-3 years, 5 years seems reasonable.

Note even in that case, I think most individual investors will not buy individual stocks from oversea market, they will buy mutual funds and let professional handle the investing.

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