Three major factors drive! JP Morgan predicts "AH parity" will appear in 2026-27

JPMorgan Chase believes that the AH premium will be eliminated by 2026-2027.

On August 14th, according to the Chasing Wind Trading Desk, JPMorgan Chase released a research report indicating that for companies listed in both mainland China and Hong Kong, the price of their A-shares has long been higher than that of their H-shares, a difference known as the "AH premium." However, starting from February 2024, this premium is expected to narrow significantly. As of August 13, 2025, the Hang Seng AH Premium Index has dropped from 144 at the beginning of the year to 123, a decline of about 14%, reaching a new low since 2020, indicating that H-shares are appreciating relative to A-shares, and the valuation gap is narrowing.

So, will the trend of narrowing valuation gaps continue? JPMorgan Chase believes this trend will persist, and it may even reach "parity" by 2026-2027, meaning that the prices of A-shares and H-shares will be nearly identical.

Three Major Driving Factors for the Narrowing A/H Premium

JPMorgan Chase points out that the narrowing of the A/H premium is driven by several key reasons.

1. Clear Trend of Earnings Upgrades (Especially in Financial and Cyclical Industries)

The HSAHP Index (Hang Seng A/H Premium Index) has a negative correlation with the earnings per share (EPS) expectations of the CSI 300. When the market raises A-share earnings expectations, investors tend to buy H-shares because they are more discounted.

JPMorgan Chase notes that policy dividends such as artificial intelligence, domestic substitution, energy transition, and anti-involution will continue to benefit sectors like materials, technology, and energy in the H-share market.

If the "anti-involution" policy continues to be promoted, it will drive a rebound in the earnings of cyclical industries. The financial sector accounts for 70% of the entire H-share components, and if banks and insurance companies see stable earnings growth, it will have a significant impact on the index. Therefore, as long as earnings expectations continue to be upgraded, investors will buy undervalued H-shares, further narrowing the premium.

2. Market Structure Differences

Data from the Hong Kong Stock Exchange in 2020 shows that retail investors only accounted for 15% of the trading volume in the Hong Kong market, while a 2017 survey of the Shanghai Stock Exchange indicated that retail investors made up 82% of the A-share market. The Hong Kong H-share market is dominated by institutional investors, who trade rationally but react slowly, and its liquidity is not as active as that of A-shares.

Data shows that among all dual-listed companies, the total market capitalization and daily trading volume of A-shares are 3.7 times and 3.0 times that of H-shares, respectively. This means that the A-share market has greater depth and stronger liquidity. However, because the H-share market is relatively "shallow," when funds concentrate on H-shares, their price fluctuations and reactions will be larger, thereby boosting H-share performance.

3. Continuous Inflow of Southbound Funds

Southbound funds investing in Hong Kong stocks through the "Stock Connect" now account for about 28% of the trading in the Hong Kong market, the highest level in nearly a decade, and 2 standard deviations above the average level since 2015.

If residents of mainland China increase their investments in Hong Kong stocks, and the "RMB-HKD dual-currency trading mechanism" is promoted to more stocks, it will enhance the liquidity and attractiveness of H-shares. This "structural capital flow" helps to improve H-share valuations.

Since the beginning of this year, such funds have tended to seek undervalued stocks with high dividend yields, and H-shares fit this characteristic In addition, JP Morgan expects the Federal Reserve to cut interest rates three times between September and December 2025, each by 25 basis points. The rate cut cycle is expected to further enhance the valuation performance of H-shares, making H-shares more attractive compared to A-shares.

JP Morgan anticipates that driven by upward revisions in earnings expectations, continuous inflows of southbound funds, and the continuation of thematic benefits, the A/H premium may further narrow, potentially reaching parity in 2026-2027