China H-Shares vs. China A-Shares

When exploring the world of Chinese stocks you’re likely to come across the terms China H-Shares and China A-Shares.

Here’s a guide to what each of these terms mean.

What are China H-Shares?

China H-Shares are shares in Chinese companies, listed on the Stock Exchange of Hong Kong. China H-Shares trade in Hong Kong Dollars and are relatively easy to access for most international investors through traditional or online stock brokers.

What are China A-Shares?

China A-Shares are shares in Chinese companies, listed on exchanges in mainland China, predominantly the Shanghai Stock Exchange and the Shenzhen Stock Exchange. A-Shares trade in Chinese yuan and, in total, are the second-largest class of equities in the world, after U.S. stocks.

China H-Shares and China A-Shares accessibility

The biggest distinction when it comes to China H-Shares vs. China A-Shares is accessibility.

Just about anyone in the world can invest in the H-Shares of a Chinese company, however this isn’t the case for A-Shares.

Direct A-Shares investing is only accessible to what’s know as Qualified Foreign Institutional Investors (QFII). For an institution to become a QFII they must apply to China’s State Administration of Foreign Exchange and meet a range of requirements relating to factors such as investing experience and total assets under management of the firm.

There are currently close to 500 QFII’s across the globe.

However, all is not lost for the retail investor wanting to buy a Chinese company that only offers A-Shares. In 2014, China moved to relax restrictions on foreigners investing in China A-Shares, through the launch of Stock Connect.

While not a direct trade in the Shanghai or Shenzhen exchanges, Stock Connect enables foreign investors to trade A-Shares listed on those Exchanges via the Stock Exchange of Hong Kong.

There are two Stock Connect trading platforms known as Shanghai Connect (includes all stocks of the SSE 180 Index, SSE 380 Index and all the Shanghai -listed A-Shares that have listed H-Shares), and Shenzhen Connect (includes stocks in the SZSE Component Index, the SZSE Small/Mid Cap Innovation Index that have a market capitalization of not less than 6 billion yuan, and all Shenzhen-listed A shares that have corresponding H shares).

You can read this overview of the key Chinese stock indexes for more insights into these indexes.

Some international trading platforms and brokerage firms offer retail investors access to both H-Shares and A-Shares via the Stock Connect platforms. The majority, however, offer only H-Shares.

Price divergence

For companies that have both A-Shares and H-Shares on issue, there can often be some price divergence between the trading price for the company’s stock on the mainland and the trading price of the same company’s stock trading on the Honk Kong exchange.

This is because of the fact that Chinese retail investors are the main influence on the price of A-Shares and international investors are the main influence on the price of H-Shares.

However, it is rare for prices to diverge to extremes and arbitrage is near impossible due to the fact that H-Shares and A-Shares are not convertible and it’s very difficult to short stocks in the A-Share market.

Want to invest in Chinese stocks? Read Asia Markets’ guide on how to invest in Chinese stocks.