(Bloomberg) — The premium Chinese stocks have over their Hong Kong listings has shrunk, driven by a potential dividend tax waiver for equities bought in the city through a China trading link.
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The Hang Seng Stock Connect China AH Premium Index, which tracks the price difference between the largest shares listed in both markets, has fallen more than seven percentage points this month. Stocks listed on mainland exchanges, known as A-shares, are now trading at around a 40% premium to their counterparts across the border, the lowest since July.
The annual average of the gauge has climbed for four years through to 2023, as investors shunned the market, which had taken the worst of the blows from China’s crackdown on big tech as well as geopolitical tensions.
However, the gap may be poised to narrow further with regulators seeking to promote Hong Kong’s financial status and vowing more measures that would boost liquidity in the market. China is also considering a proposal to exempt a dividend tax on Hong Kong stocks. Mainland investors, who have been enthusiastic buyers of Hong Kong equities this year, may pick up more of their favorite dividend plays, rendered even more attractive if taxes are lifted.
(Corrects headline to change discount to premium)
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