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Asia-Pacific | Equities

Reviewing China A-shares vs H-shares Performance

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H-share versus A-share performance: A-shares outperformed H-shares as of 21 February 2020. SHSZ300 Index was +1.3% year to date, slightly better than +0.4% for MSCI China Index and -3.4% for HSCEI in the same period. All these indexes were at trough by January end and then rebounded on the expectation of government policy support and better control of the coronavirus outbreak ahead. SHSZ300 Index has rebounded 12.5% from January end, exceeding 5.9% for MSCI China Index and 5.4% for HSCEI.

 

A-shares more policy driven; H-shares more fundamental oriented: Citi analysts attribute the sharper rebound of SHSZ300 Index for participants of the A-share market to being probably more sensitive to government policies. The Chinese government has launched stimulus policies since 30 January 2020 facilitating work resumption and supporting the local economy. A-share market has been dominated by retail investors representing the majority of the turnover and their sentiment has been very much policy driven. On the other hand, the H-share market has been dominated by institutional investors thus is more fundamental oriented.

 

 

 

 

A-shares probably to continue to outperform H-shares in March: Citi analysts think A-shares are likely to outperform H-shares in March when (i) more stimulus packages might be launched by the Chinese government; (ii) downward earnings revision in the coming results season in March might hurt sentiment in H-share market more; and (iii) further monetary easing in China could benefit A-share market more directly.

 

Different investment strategy for A-shares and H-shares: For A-shares, Citi analysts prefer companies with policy drivers; additionally, highly geared companies could gain from Rmb interest rate cut. Citi analysts forecast (i) 10bp and 5bp policy rate cuts in 2Q20 and 3Q20 respectively; as well as (ii) RRR cuts by 50bp each in 2Q20 and 3Q20. For H-shares, Citi analysts favour companies with good fundamentals.

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