H-shares

What is H-shares?

H-shares are the shares of Chinese companies listed on the Hong Kong Stock Exchange or other alternative foreign exchanges. Though H-shares get regulated by the law of China; however, they are majorly denominated in Hong Kong dollars and get traded in a similar manner as other equities available on the Hong Kong exchange.

Moreover, these shares are available for more than 230 Chinese companies providing investors access to most of the significant economic sectors, including utilities, financials and industrials.

Explaining H-shares

Just after the year of 2007, China started allowing mainland Chinese investors to buy H-shares or A-shares of companies that are listed on the Shanghai Stock Exchange. Before that, Chinese investors could just buy A-shares; though H-shares were provided to foreign investors.

Since foreign investors traded in H-shares, these become more liquid in comparison to A-shares. Thus, this resulted in A-shares being traded at a premium to H-shares of a similar company. Back in November 2014, the Shanghai-Hong Kong Stock Connect linked the Hong Kong’s and Shanghai’s stock exchanges.

Regulations restricting the types of investors could buy A-shares as well as H-shares were altered to expand the Chinese investors’ assets, enhance efficiencies for trading the Chinese stocks and to include Chinese companies in the benchmark stock indices of the world.

Since the Chinese stock Market was unified; it turned out to be one of the largest stock exchanges in the world as per the daily trading turnover and market cap.

H-Shares Regulations

Companies providing H-shares should follow the regulations that have been described in the Stock Exchange of Hong Kong’s Listing Rules for the mainboard and the growth enterprise market. These rules describe that annual accounts should follow international or Hong Kong Accounting standards.

The articles of Incorporation of a company should comprise sections outlining the differentiating nature of foreign and domestic shares, including H-shares. These articles should also state the rights provided to every purchaser.

The sections that protect investors should follow the Hong Kong laws and be included in the constitutional documents of the company. If not, the listing and trading process of H-shares will be similar to that of other stocks listed in the Hong Kong exchange.

Example of H-shares

Back in July 2016, Fullerton Financial Holdings Pte Ltd, a unit of Temasek Holdings Ltd, managed to sell 555 million H-shares in the China Construction Bank Corporation as a part of basic investment Portfolio adjustments. This resulted in a decrease in the H-shares to 4.81% from 5.03% by ST Asset Management Ltd. and Fullerton.