What are H-Shares?
H-shares are shares of Chinese mainland enterprises listed on the Hong Kong Stock Exchange or other international exchanges. H-shares, governed by Chinese law, trade on the Hong Kong exchange in Hong Kong dollars. More than 230 Chinese enterprises offer H-shares, providing investors access to significant economic sectors, including financials, industrials, and utilities.
Understanding
China allowed mainland Chinese investors to buy A-shares or shares of Shanghai Stock Exchange-listed businesses in 2007. Previously, Chinese investors could only buy A-shares, while international investors could also buy shares. H-shares are more liquid than A-shares, as overseas investors can trade them. Therefore, A-shares of the same company usually have a higher price than H-shares.
Differences between A- and H-shares
Public Chinese corporations listed on the Shenzhen and Shanghai stock markets or other Chinese markets provide A-shares. Chinese mainlanders trade shares in the renminbi. The Qualified Foreign Institutional Investor framework regulates foreign investment in particular enterprises. The Hong Kong Stock Exchange lists public Chinese H-share firms. All investors can freely trade H-shares in Hong Kong dollars.
Regulation of H-Shares
H-share issuers must follow the Stock Exchange of Hong Kong (SEHK) Main Board and Growth Enterprise Market Listing Rules. The laws require yearly accounts to adhere to Hong Kong or international accounting standards. A company’s articles of formation must distinguish between domestic and international shares, including H-shares. The articles must specify the rights granted to each buyer. Investor protection must follow Hong Kong legislation and be in the company’s constitution. Otherwise, listing and selling H-shares is like selling other Hong Kong equities.
Shanghai-Hong Kong Stock Exchange Connect
The Shanghai-Hong Kong Stock Connect connected both stock markets in November 2014. Changes to A-share and H-share rules aim to diversify Chinese investors’ holdings, improve trading efficiency, and incorporate Chinese businesses in global benchmark indexes. After unifying its stock market, China became one of the largest stock exchanges by market valuation and daily trading turnover.
Example
During regular investment portfolio adjustments in July 2016, Fullerton Financial Holdings Pte Ltd., a Temasek Holdings (Private) Ltd. unit, sold 555 million H-shares in China Construction Bank Corporation. Fullerton and ST Asset Management Ltd., a Temasek company, cut their H-shares from 5.03% to 4.81%.
