A-Share vs H-Shares in China
For those unfamiliar with China's markets, Chinese companies may have Shanghai listed trading as well as Hong Kong listed trading. A-shares are listed on the Shanghai exchange and are largely available only to domestic investors. H-shares are listed on the Hong Kong Stock Exchange; they are available mainly to non-chinese investors (like QDII, International investors). But in both cases, the origin of business should be Mainland China.
There is a huge price difference at which mainland companies trade in both the exchanges, and interestingly there is no channel to arbitrage. A-shares trade at a huge premium over H-share counterparts (or even what is being quoted in London exchanges). This is largely due to huge imbalances between supply and demand of high quality stocks in China. High restrictions/regulations combined with high demand from newfound investible wealth is pushing premiums up.
To track this, there is an index called Hang Seng China AH Premium Index" which measures the the spread between the A-shares and H-shares of dual-listed companies domiciled in Mainland China. This means that A-shares as a group are currently trading at a premium of about 80% over the H-shares and that at one point they were trading at a premium of more than 100% !!
The spread is going up constantly, perhaps due to China being a closed market whereas Hong Kong is a fiercly open economy; thus it reacts more sharply to international economic developments. A recent credit crisis left many markets crashing, impacting HK markets as well. Again, the HK currency is pegged to the USD, implying a greater hit for investors!