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Chinese stocks see premium to Hong Kong peers quickly disappearing
(Bloomberg) — The premium Chinese stocks command over listings in Hong Kong has narrowed, driven by a possible dividend tax exemption for shares bought in the city through a business link with China.
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The Hang Seng Stock Connect China AH Premium Index, which tracks the price difference between the biggest stocks listed on both markets, has fallen more than seven percentage points this month. Shares listed on mainland exchanges, known as A shares, are now trading at a premium of around 40% to their counterparts across the border, the lowest since July.
The indicator’s annual average rose for four years through 2023 as investors avoided the market, which has borne the brunt of the blows from China’s crackdown on big tech as well as geopolitical tensions.
However, the gap could narrow further as China considers a proposal to waive a dividend tax on Hong Kong shares. Mainland investors, who have been enthusiastic buyers of Hong Kong shares this year, will be able to opt for more of their favorite dividend plays, which will become even more attractive if taxes are reduced.
The benchmark Hang Seng Index is on track for its third week of gains, adding as much as 2.5% on Friday. The rise in sentiment comes at a time when regulators appear to be making good on their promises to boost Hong Kong’s financial health and increase liquidity in the market.
(Adds details of Hang Seng Index movements in last paragraph)
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