Why are the prices of Hong Kong stocks different from those of A shares?

There are several main reasons. First of all, the leading force in the A-share market is domestic funds, while the pricing power of Hong Kong stocks is in the hands of foreign investors. Foreign investors do not know enough about domestic companies. At the same time, the risk preferences and valuation methods of foreign investors are somewhat different from domestic ones, resulting in The same business often has different valuations.

The second is the impact of dividend tax. There is not much tax on dividends held by A-shares for a long time, but the tax rate on Hong Kong stocks is much higher: If you use mainland funds from Shanghai-Hong Kong Stock Connect, what should you pay? There is a 20% dividend tax. If you open an account directly with a Hong Kong securities firm, you will also have to pay a 10% dividend tax. On the contrary, in A-shares, investors who hold it for more than one year are exempt from tax. The third point is the exchange rate issue. In the long term, the RMB has appreciation pressure, and the Hong Kong dollar is anchored to the US dollar. If the RMB appreciates, the difference in stock prices will decrease.

The last point is the issue of liquidity. Anyone who has traded Hong Kong stocks knows that for the same stocks, the trading volume of A shares is very large and the liquidity is very good. Many small tickets in Hong Kong stocks may be more than a dozen a day. A trading volume of 10,000 is unimaginable in A-shares. Higher trading volume will support higher prices. This is the so-called liquidity premium.

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The reasons why Hong Kong stocks are much cheaper than A-shares are as follows: 1. Large companies that pay stable dividends, such as Huaneng International and Nanjing-Shanghai Expressway. This is why they have no growth potential. The only basis for valuation is related to the interest rate levels in the two places. Taking the Nanjing-Shanghai Expressway as an example, the current A-share price is 5.5 and the Hong Kong stock price is around 8.8, which is equivalent to about 7 yuan. The dividend per share in 2013 was 0.38 yuan including tax. If the 10% dividend tax is deducted, the corresponding dividend rate of A-shares is 6.2%, and the dividend rate of Hong Kong stocks is 4.9%. It can be seen that the dividend rate level recognized by investors is much lower than that of A-shares. Why is this? That is, the risk-free rate of return is lower than that in mainland China. For this reason, interest rates there are very low and have remained low for a long time, so a dividend rate of 5% a year is already a good return. Another reason, which is very important, is that the mainland's risk-free rate of return has improved in the past two or three years.

2. Leading companies in cyclical industries represented by Conch Cement, China Shenhua, and Anshan Iron and Steel Co., Ltd. We know that these industries are not doing well in A-shares right now, the expectations are very pessimistic, and the valuation levels are quite low. But investors, on the other hand, believe that these companies are leading companies and have proven their excellent status in this industry. We know that this industry will not be good in the future and a number of companies will close down. Then these leading companies will definitely be the winners after the integration, and their profit levels will increase. Focusing on him, Conch Cement’s profitability has proven that its profitability in 2013 should be second only to 2011, so investors may give them a much higher valuation than A-shares, which also reflects the very important characteristics there like big stocks. enterprises, excluding small enterprises. Large companies will consolidate after the industry is saturated, and they will be the winners of structural growth.

3. High valuation of brand consumption: Tsingtao Beer. This is a reflection of the high valuation of consumer goods. Mengniu’s valuation is about 20% higher than that of Yili. For example, the valuations of Master Kong Holdings and Vitasoy International, which are not growing well, are very high, and a dynamic price-to-earnings ratio of 30 times is very normal. Brand consumption is also high, such as Prada and L'Occitane. The valuation range does not change much and does not decrease as the growth rate decreases. Let’s talk about Tsingtao Beer. Beer industry organizations expect that expenses will decrease after integration. Currently, the top five market share is 70%. However, the promotional fees are still very high, many of which are buyout fees. This shows that the beer brand is not strong enough. Going out to drink beer does not pay as much attention to the brand as liquor and wine. .