In the last 12 months the index of Chinese ADRs has fallen some 55%. The H share index has fallen 34%. So what? the beleaguered US investor might retort. What with Beijing regulating business, the prospect of rising rates undermining growth valuations and the SEC showing Chinese companies the door on their Wall Street listings, is it any wonder that the stocks making up these indices have been hammered?
Perhaps not. But why are A shares not down by a similar amount? Over the same period the CSI is down 19% When you bear in mind that prior to Q1 2021 the correlation between ADRs, H shares and A shares has for the most part been pretty tight, this seems odd. H shares now trade at a discount of 14% to A shares – the biggest discount that we have seen in 15 years.
Putting aside the different components of these indices for a moment and fixing instead on their respective owners, what do Chinese investors in A shares have up their sleeves? Have they got a better feel for how well companies are doing in China notwithstanding the burgeoning lockdown? Or is their appreciation of Beijing’s ability to inject some liquidity (see the announcement yesterday from China’s economic czar, Liu He (surely, he should change his title)) more attuned than their international counterparts who are fretting about global macro considerations that may not be germane to China? Interest rates in China have eased at the margin after all?
I don’t know the answer, but one thing is clear: the prospect of delisting from the US was last year’s news and is no longer a significant factor. Investors should stop fretting about it. More business regulation and more inflation are still factors with which to reckon when considering Chinese investment, that is for sure. But in China both of these trends seem rather muted for now.
A PDF version of this article is available here.
This article has been issued by Aubrey Capital Management Limited which is authorised and regulated in the UK by the Financial Conduct Authority and is registered as an Investment Adviser with the US Securities & Exchange Commission. You should be aware that the regulatory regime applicable in the UK may well be different in your home jurisdiction. This article has been prepared solely for the intended recipient for information purposes and is not a solicitation, or an offer to buy or sell any security. The information on which the document is based has been obtained from sources that we believe to be reliable, and in good faith, but we have not independently verified such information and no representation or warranty, express or implied, is made as to their accuracy. All expressions of opinion are subject to change without notice. Any comments expressed in this article should not be taken as a recommendation or advice. Please note that the prices of shares and the income from them can fall as well as rise and you may not get back the amount originally invested. This can be as a result of market movements and of variations in the exchange rates between currencies. Past performance is not a guide to future returns and may not be repeated. Aubrey Capital Management Limited accepts no liability or responsibility whatsoever for any consequential loss of any kind arising out of the use of this article or any part of its contents. This article does not in any way constitute investment advice or an offer or invitation to deal in securities. Recipients should always seek the advice of a qualified investment professional before making any investment decisions.
