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September 21, 2007

Chinese A-Share H-Share Arbitrage Trade Goes on

posted by MR WAVETHEORY at 9/21/2007 06:35:00 AM
A market strategist in Hong Kong writes that China is slowly letting money flow into Hong Kong - rather than in one fell swoop. It just means that A-Share and H-Share arbitrage traders will have more time to put the trade on and make $$$:

"The thing to remember here is that China never likes to do anything straight off," said Andrew Sullivan, head of trading at Daiwa Securities SMBC in Hong Kong. Anecdotal evidence by Hong Kong brokers suggests outward investment demand from investors in China has been very strong.

Chinese regulators were seeking safeguards against a sudden and destabilizing outflow of capital, Sullivan said. It is likely regulators will restrict fund flows initially but then relax them over time, Sullivan said, much as they have done with other regulations affecting trade and travel to Hong Kong.

"They want to slowly wind down the bubbles that they've got in Shanghai and Shenzhen," he said. "And the way to do that is to allow the money out that will initially arbitrage the difference between the A share and the H shares." There are 41 dual-listed companies which trade in Shanghai as class A shares and in Hong Kong as class H shares.

The stocks that are arbitrage related in the US are:

Aluminum Corporation of China (NYSE ACH)
China Southern Airlines Limited (NYSE ZNH)
China Eastern Airlines (NYSE CEA)
China Petroleum (NYSE SNP)
Sinopec Shanghai Petrochemical (NYSE SHI)
China Life Insurance Company (NYSE LFC)

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