What are H actions?
H shares are shares of mainland Chinese companies listed on the Hong Kong Stock Exchange or other currencies. Although H shares are regulated by Chinese law, they are denominated in Hong Kong dollars and are traded in the same way as other shares on the Hong Kong stock exchange. H shares are available to more than 230 Chinese companies, giving investors access to most of the major economic sectors, such as financial services, industrials and utilities.
Understanding H shares
After 2007, China began to allow mainland Chinese investors to buy A or H shares of companies listed on the Shanghai Stock Exchange. Before that, Chinese investors could only buy A shares, although H shares were also offered to foreign investors. Since foreign investors can trade H shares, shares are more liquid than A shares. As a result, A shares are generally traded at a premium compared to H shares of the same company.
Differences between A actions and H actions
A shares are offered by Chinese public companies listed on the Shenzhen and Shanghai stock exchanges or other Chinese stock exchanges. A shares are generally listed in Chinese renminbi and traded by mainland Chinese citizens. Foreign investment in these companies is regulated by the system of qualified foreign institutional investors. On the other hand, Chinese public companies offering H shares are listed on the Hong Kong Stock Exchange. In addition, H shares are listed in Hong Kong dollars and freely traded by all types of investors.
Regulation of H shares
Companies offering H shares must follow the rules described in the Hong Kong Stock Exchange (SEHK) listing rules for the lead counsel and for the growing business market (GEM). The rules state that annual accounts must follow Hong Kong or international accounting standards. The statutes of a company must include sections specifying the variable nature of national and foreign shares, including H shares. The articles must also mention the rights granted to each buyer. Sections protecting investors must comply with the laws of Hong Kong and be included in the company’s constitutional documents. Otherwise, the listing and trading processes for H shares are similar to those for other Hong Kong stocks.
Stock Connect between the Shanghai and Hong Kong stock exchanges
In November 2020, the Shanghai-Hong Kong Stock Connect linked the Shanghai and Hong Kong stock exchanges. Rules limiting the types of investors who can buy A shares and H shares have been changed to diversify the assets of Chinese investors, increase the efficiency of trading Chinese stocks, and include Chinese companies in benchmark stock indexes world. Because the stock market in China was unified, it has become one of the largest stock exchanges in the world in terms of market capitalization and daily turnover.
Example of H actions
In July 2020, Fullerton Financial Holdings Pte Ltd., a unit of Temasek Holdings (Private) Ltd., sold 555 million H shares in China Construction Bank Corporation as part of regular adjustments to the investment portfolio. As a result, Fullerton and ST Asset Management Ltd., also a unit of Temasek, reduced their H shares from 5.03% to 4.81%.