China’s yuan-dominated stocks, which were heading for its worst week in 16 months, will likely see a rebound after declining below counterparts listed in Hong Kong, according to Mr. Jerry Lou, China strategist at Morgan Stanley.
"The market looks very, very oversold," said Mr. Lou. The discount for stocks in Shanghai in relation to Hong Kong "is really, really rare", he added.
According to the Hang Seng China AH Premium Index, yuan shares traded in Shenzhen and Shanghai, and restricted almost exclusively to local investors last month fell below the stocks traded in Hong Kong for the first time since 2006.
When it happened in November 2006, China’s benchmark index had tripled in a year, outpacing a 58-percent increase in the MSCI Emerging Markets Index and 156-percent increase in Hong Kong’s index.
The Shanghai A-Share Stock Price Index, which tracks the yuan stocks traded in Shanghai, dropped seven percent last week, the lowest decline since February last year.