China’s mainland shares took a one-day 5% hit last week, but this time the sell off didn’t spill over much into global markets -- at least not yet.
Still, a curious divergence continues to exist between mainland shares listed in Shanghai, as represented by the Shanghai-Shenzhen 300 Index – and the Hang Seng China Enterprises Index – which includes many of the same companies, which also have shares listed in Hong Kong.
Since October 2006, the Shanghai index is up a remarkable 125%, while the China Enterprises list of Hong Kong listed mainland shares is trailing, with (still impressive) gains of about 37%.
The Divergence is even more striking since the beginning of 2007, with Shanghai up 54% -- while the Hang Seng China Enterprises index has actually fallen about 3% in value.
While these two indexes don’t contain the exact same list of stocks in the same proportion, many of the shares with the largest weighting are included in both. And while you might expect performance to be somewhat divergent – this appears to be a major disconnect in valuation that tells me -- sooner of later -- something’s got to give.
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