Hong Kong stocks are a winning trade, investors say, as worries over pricey A-shares and favorable policy announcements send mainland investors bargain hunting down south.
The benchmark Hang Seng Index shot up 4 percent to its second straight seven-year peak on Thursday, playing catch up to the Shanghai Composite's recent string of seven-year highs. Year-to-date, Shanghai is up 23 percent and the Hang Seng 11 percent higher, but between the two analysts say Hong Kong offers better value.
"China stocks are no longer cheap. The momentum is in place, so let's see whether it starts moving into bubbly valuations," Roger Tan, CEO of Voyage Research, told CNBC
HSBC agrees, noting that 40 percent of Shanghai-listed companies have price-to-book (PB) ratios in the range of 1X-3X. For Shenzhen-listed firms, that range increases to 5x-10x. By contrast, nearly 40 percent of Hong Kong companies have a PB below 1X, and 32 percent have a PB of 1X-2X. A low PB suggests that a stock is undervalued.
H-shares are also more attractive on a forward price-to-earnings (PE) basis, according to IG. Since March 2014, the CSI 300 has increased from 8.11X to 15.6X, while H-shares have gone from 6.3X to 9.33X, which is still relatively cheap, the spread-betting firm said in a note on Thursday.