Hua Er Jie Jian Wen·2025-06-16 08:36Core Viewpoint - The AH premium rate has reached a five-year low, indicating potential for valuation recovery in the Hong Kong stock market, with the current premium rate at 27%, the lowest since August 2020 [1] Group 1: AH Premium Rate Analysis - The Hang Seng AH premium index has dropped significantly below the 130-point mark, which historically indicates a premium rate of 30% for A-shares [1] - The weighted AH premium rate has narrowed from 64.6% to 42.2% in 2023, a decrease of 22.4 percentage points [6] - The narrowing of the AH premium rate is influenced by the performance of growth stocks and the dominance of financial stocks [9] Group 2: Market Dynamics - Since 2021, the AH premium rate has shown a negative correlation with the CSI 300 index, suggesting that during market recoveries, Hong Kong stocks tend to outperform A-shares [2] - The increase in the turnover rate of the Hang Seng small-cap index since 2024 indicates heightened market activity [5] - The recovery of liquidity discounts in Hong Kong stocks is attributed to the significant decline in A-share trading volumes and the enhanced trading characteristics of Hong Kong stocks due to foreign capital withdrawal [4] Group 3: Sector Contributions - The sectors contributing most to the narrowing AH premium rate include non-bank financials (-5.4 percentage points), banks (-5.3 percentage points), and oil & petrochemicals (-2.9 percentage points) [9] - The most significant reductions in AH premium rates this year have been observed in growth sectors such as electrical equipment, pharmaceuticals, non-ferrous metals, semiconductors, and automobiles [11] Group 4: Individual Stock Insights - Companies like CATL, which recently listed in Hong Kong, currently show a discount of 10.9% from A-shares to H-shares, while SMIC's premium rate has decreased from 221.3% to 129.7% [13] - High dividend yield stocks generally exhibit lower premium rates, with those yielding over 4% having a significantly reduced probability of high premium rates [16] Group 5: Future Outlook - Key factors influencing the AH premium rate include the continued improvement in trading activity in the Hong Kong market, the quality of listed companies, and the qualifications of new IPOs from A-shares to Hong Kong [17] - The report suggests that there is potential for further narrowing of the AH premium rate, with the possibility of more Hong Kong stocks trading at a premium to A-shares in the long term [17]