AH premium hits a five-year low, and some popular stocks have shown "inversion"

The premium rate of China's A-shares relative to H-shares has fallen to a five-year low, and leading stocks favored by global investors, such as BYD and CATL, have rarely shown an "inversion" phenomenon where A-shares are lower than H-shares. This abnormal market structure is sending potential signals to investors that A-shares may be undervalued.

According to the Hang Seng AH Premium Index, the premium rate of mainland stocks (A-shares) compared to the same company's stocks traded in Hong Kong (H-shares) is currently 27%, marking the lowest record since August 2020.

The Hang Seng AH Premium Index has significantly dropped below the 130-point threshold, which represents a 30% premium rate for A-shares. Historically, when the premium rate falls below 30%, the valuation gap tends to widen again. In contrast, in February 2024, the Hang Seng AH Premium Index once exceeded 160 points.

Data chart source: Hang Seng Index Company

The most notable trend is that companies like BYD and CATL are experiencing rare discounts in A-shares relative to H-shares, forming what the market calls an "inversion" phenomenon. Analysts believe that this unusual price relationship may provide potential opportunities for investors to position themselves in A-shares.

Since the beginning of this year, the CSI 300 Index, as the benchmark for mainland stocks, has significantly underperformed the Hang Seng China Enterprises Index, with this performance gap expected to reach the largest since 2003. Earlier this week, the Hang Seng China Enterprises Index entered a bull market, while the rebound in the mainland market has been more moderate.

Analysts believe that as the valuation advantage of A-shares reappears, market participants are closely watching whether this valuation gap will trigger a new round of recovery, as seen in historical patterns, or reflect a long-term trend of fundamental divergence between the mainland and Hong Kong markets.

Typically, A-shares have a general premium over H-shares. Analyst Gui Haoming stated that this premium has historical factors. Although A-shares are increasingly opening up, they remain relatively closed, while H-shares are listed in Hong Kong and accessible to global allocations. A relatively closed market will inevitably have a price gap compared to a globally allocated market, which is determined by the characteristics of the market itself.

The premium rates in different industries vary between the two markets. Traditionally, brokerage stocks, airline stocks, and infrastructure stocks generally have high premiums, while some resource stocks, raw material stocks, and home appliance stocks belong to the lower premium sectors.

How far is "same stock, same price"?

According to Xinhua News Agency, this year, influenced by factors such as valuation advantages, marginal easing of overseas liquidity, and continuous inflow of southbound funds, Hong Kong stocks have generally outperformed A-shares, and the Hang Seng AH Premium Index has also entered a new round of decline, dropping to a low of 128.31 points on March 19 This means that in the "A+H" camp, the overall premium of A-shares relative to H-shares was less than 30% at that time.

Xi Qingqing, chairman of Qingbom Capital, stated that after the trading volume of Hong Kong stocks rose this year, it has not decreased. Generally speaking, the higher the trading volume, the higher the valuation, so from the perspective of capital momentum, the valuation gap between the two markets will continue to narrow. "Currently, southbound funds are flowing into Hong Kong stocks at over 10 billion daily, which will definitely become an important force in restoring the valuation of Hong Kong stocks."

At the same time, foreign institutions are also gradually adjusting their pricing logic for A-share companies.

Wang Zonghao, head of China equity strategy research at UBS Investment Bank, stated that as the AH premium approaches historical lows, the onshore public funds' holdings of H-shares are at historical highs, and there are some signs of improvement in the macro economy, he believes that the AH premium may reverse