Most mainland China Indices are very strong; however, H-Shares continue to lag. Doesn't add up in my book; H-Shares should be going gangbusters. Any thoughts? 

Eoin Treacy's view

Hong Kong listed Chinese shares, represented by the China Enterprises Index (H-Shares) outperformed the mainland market until about September and has been engaged in a process of mean reversion since. The Hang Seng Index did even better but has also pulled back more recently.

They were due a pullback to unwind the short-term overbought condition but I suspect the reason they have not rallied yet is because of interest rates. The Hong Kong Dollar is pegged to the US Dollar so it has US interest rates. With increasing expectations of a Fed hike Hong Kong listed shares are digesting what that will mean for the economy but the Dollar’s strength has also been a headwind for nominal prices. 


Taking those factors into account, I agree the Chinese mainland is benefitting from its weaker currency and increased manufacturing activity. It should do well overall if US demand in particularly picks and that suggests the pullback in Hong Kong listed equities is likely to limited to a reversion to the mean.