Chinese investors go bargain-hunting in Hong Kong for China shares

Hong Kong

CHINESE stock investors are finally seeing value in domestic shares, but there's a twist: instead of wading back onto battered onshore exchanges, they've gone shopping for bargains in Hong Kong.

By doing so they are exploiting a long-standing market distortion that means the average share price of a dual-listed Chinese company is currently 40 per cent lower in Hong Kong than in Shanghai or Shenzhen.

The Hang Seng China Enterprises Index (HSCE) now trades at an average price-to-earnings (PE) ratio of slightly more than 6 - much cheaper than broader Asian markets, which trade around 13 - and the cheapest the HSCE has traded since December 2001.

The index of so-called H-shares is also trading below book value, meaning the average company's shares are pricing the business below its accounting value. "Investing in Hong Kong stocks is the right choice, because the Hang Seng's current valuation is near historic lows; the kind of opportunity which has generated handsome returns previously," said Zhu Haifeng, a 31-year-old in…