Pricing Discrepency in China Stocks
An individual stock is merely a piece of data or paper that represents a certain degree of ownership in a company, right? If that is the case, why would people in Mainland China be willing to pay far higher prices than Hong Kong people would be willing to pay for the same amount of ownership in a company?
Perhaps because mainland China’s stock market is a little irrational at the moment? That is probably understating the case (with gains of around 60% in less than a year). This from last week’s edition of Modern Weekly, translated from Chinese into English by The China Expat:
One stock, two prices. In the five-year record breaking, ever rising environment of the mainland Chinese stock market, many individual stock prices far exceed what the same exact stock would sell for in the Hong Kong market. The average price difference is 50% higher than the Hong Kong price. This phenomenon is more obvious among companies with smaller capitalization’s, and it reveals a somewhat strong speculative environment.
A somewhat strong speculative environment? How about a speculative bubble waiting to burst?
Parts of China Stock Markets in a Speculative Bubble
While there are certainly some good investments to be had among the countless companies listed in the Shenzhen and Shanghai stock markets of mainland China, overpaying for ownership in a company by 50% or more is not the wisest of investment decisions. This just lends further proof about the extent to which stock ‘investing’ is treated as gambling in China, and how frothy and bubblicious parts of the mainland China stock markets have become.
