Wednesday, August 14, 2019

Invest in H shares of China blue chip companies

Prior to 1999, the blue chip shares in Singapore were separated into local tranche and foreign tranche for trading in the stock exchange. The local tranche can only be held by local entities. The foreign tranche can be held by local or foreign entities.

Due to the higher demand for the foreign tranche, the prices were higher than the local tranche by, if I remember correctly, about 30%.

Some local investors preferred to buy the foreign tranche because the prices were more higher and more active. They hope to make a "faster profit".

I was CEO for an insurance company. I insisted that all our shares were invested in the local tranche as it was cheaper, and the shares gets the same dividends and other rights.

In 1999, the government gave the green light for these blue chip shares to merge their local tranche and foreign tranches. They become just one tranche and both local and foreign investors are allowed to buy the shares.

The price of the merged tranche takes the higher price of the fireign tranche. Our portfolio of local tranche shares saw a large appreciation of 30%. It gave a hefty boost to our surplus.

I now see the same phenomena of blue chip shares of China that are traded in Shanghai and Shenzhen - the A shares, and those traded in Hong Kong - the H shares.

The price of the A shares are about 30% higher than the H shares. In the case of a particular share that I have invested, i.e. China Molybdenum (a mining company involved in rare earth), the difference is 80%.

I have decided to buy a large chunk of China Molybdenum shares in HK (HKG 3993) and wait for the prices to narrow. It will come one day.

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