H-Shares vs. A-Shares: What's the Difference?

H-Shares vs. A-Shares: An Overview

China has experienced significant growth over the years, making its economy a hot topic among investors. Companies that are registered and incorporated in mainland China and go public have the option of trading on any of the country's stock exchanges or they can list their shares on the Hong Kong Stock Exchange (HKG). Shares are divided into different classes, including H-shares and A-shares.

H-shares trade on Hong Kong's exchanges and are regulated by Chinese law. These securities are traded in Hong Kong dollars and are freely traded by anyone, including foreign investors. A-shares, on the other hand, represent publicly listed Chinese companies that trade on Chinese stock exchanges such as the Shenzhen Stock Exchange (SZSE) and Shanghai Stock Exchange (SSE). These stocks trade in Chinese yuan renminbi (CNY). Chinese law makes it very difficult for foreign investors to buy and sell A-shares.

H-Shares

H-shares represent the shares of public companies from mainland China that are listed on the HKG. As such, these shares are issued in China under Chinese law but are subject to the HKG's listing requirements. The rules state that:

• A company's annual accounts must follow Hong Kong or international accounting standards.
• A company’s articles of incorporation must also include sections clarifying the varying nature of domestic shares and foreign shares, including H-shares, as well as the rights given to each purchaser.

H-shares quote and trade with a face value of Hong Kong dollars. These shares are also open for all investors to trade, including international investors. For instance, people in the U.S. who are interested in buying and selling H-shares can do so through the international trading platform of their brokerage firm. This is unlike A-shares, which are not open to foreign investment.

There are usually price discrepancies between a company's A-shares and H-shares. Also, A-shares generally trade at a premium to H-shares.

A-Shares

A-shares are the shares of incorporated companies based in mainland China that are listed on either the Shanghai or Shenzhen stock exchanges. These shares are issued in China under Chinese law and are quoted in Chinese yuan or renminbi.

After 2007, China let mainland Chinese investors purchase either A-shares or H-shares of companies listed on the Shanghai Stock Exchange. Before that, Chinese mainland investors could purchase only A-shares, even though H-shares were also offered.

A-shares are generally only available to citizens of mainland China, which makes it difficult for the average foreign investor to get into the market. The country's laws do allow foreign investment through a regulated structure. Some institutional investors may qualify as Qualified Foreign Institutional Investors (QFIIs) or other strict trading programs. Only a select group of institutional investors have qualified for QFII status and can buy and sell Chinese A-shares.

Since foreign investors may trade H-shares, the shares are more liquid than A-shares. For American investors who are not QFII qualified, the only way to access these shares may be through an emerging market fund or by investing in American depositary receipts (ADRs).

MSCI Emerging Markets Index

There has been a great deal of effort to give individual foreign investors a greater opportunity to put their money into A-shares. One way investors can do so is by looking at different investment opportunities that may include A-shares like exchange-traded funds (ETFs) and other funds.

In 2020, the MSCI Emerging Markets Index was weighted 40.95% in the Chinese market and partially includes large-cap A- and mid-cap-A-shares from China. In 2018, the same index held 32.72% in the Chinese market.

In February 2019, the firm announced it was increasing its weight of large-cap A-shares from 15% to 20% by November 2019—a move it said was well-received by investors. By the end of the move, the firm said it would have 253 large-cap and 168 midcap A-shares in the index.

As of January 2024, the index was heavily weighted in China, with 24.87% of its portfolio invested in the country.

Special Considerations

Buying shares of public Chinese companies isn't as simple as buying shares in the United States. While shares traded on public markets in the U.S. are generally available to anyone, the Chinese stock markets have strict restrictions on who can buy and what is available to them for purchase. The distinctions are important to know if you want to start trading or investing there.

One way to invest in China is through an American depositary receipt (ADR). These certificates, which represent a certain number of shares of foreign companies, trade on the U.S. market. ADRs remove any restriction for investors who cannot otherwise invest in a foreign entity. And since they trade on American exchanges, they're valued in U.S. dollars, so there are no pricing, currency value, or exchange issues.

Investors can also use the Shanghai-Hong Kong Stock Connect, a system designed to give investors mutual market access. It links both the stock exchanges in Shanghai and Hong Kong and lets investors trade shares in each market using their brokers. Established in 2014, it allows foreigners to buy A-shares without the typical restrictions. All transactions are conducted in Chinese currency—not in Hong Kong dollars.

The Bottom Line

H-shares and A-shares are two types of shares of public companies from mainland China. While A-shares trade on Chinese stock exchanges and are typically reserved for citizens of mainland China, international investors can access A-shares. These shares are for public Chinese companies that trade on the Hong Kong Stock Exchange. Talk to a brokerage firm if you're interested in investing in A-shares. As with any investment, make sure you do your due diligence and research before diving into this market.