≈ 1.5 points
The extra annual return the price of Chinese equities demands over developed markets. That is roughly the cost of the risk of losing access.
The Portfolio at a Glance
The following overview summarizes the strategic building blocks, position directions, and allocated assets for this research theme.
Long
State companies with covered dividends
This is where it shows most clearly whether exclusion depresses the price. US investors may not buy two of the three companies; PetroChina serves as the comparison without sanctions.
Long
Broad access through Hong Kong
Two index funds for investors who would rather not pick single names: one for dividend yield, one for the broad Hong Kong market.
Long
Earning on the flow into Hong Kong
Hong Kong’s exchange earns on every listing and every Stock Connect trade. AIA sells savings policies to mainland customers who would rather keep their money outside China.
Long
Overlooked dividend payers
Neither Western funds nor mainland investors buy these shares. The companies hold more cash than debt and have paid out for years. Each position stays small and has to pass the five checks every year.
Long
Option on a Western return
Deliberately small. When Western funds close their underweights, these are the names they buy first.
Short
Hedge
A short in the Hang Seng TECH hedges the overlooked dividend payers against market swings. It is not a standalone bet.
The analysis
The story is familiar, and it sounds plausible. Pension funds, insurers and sovereign wealth funds cannot put a number on the risk of Chinese state intervention. What cannot be modelled does not fit a risk process or a capital rule. So it stays out, whatever the price. Investors who avoid a market wholesale keep selling long after it has become too cheap.
On closer inspection, that is only partly true. The avoidance is not blanket. Passive money in global and emerging-market indices still holds China at roughly index weight. Active global funds were only about 1 percentage point underweight at the end of August, emerging-market funds about 2.6 points.1 Blanket exclusion applies to a narrower circle. It includes securities that US persons are barred by law from buying, such as China Mobile and CNOOC on the US NS-CMIC sanctions list. It includes US public pension plans acting on political instructions: the retirement fund for US federal employees removed China and Hong Kong from its benchmark, and the state of Indiana had about $1.2bn of Chinese holdings unwound.23 Among sovereign funds there is no such pattern. In an Invesco survey, 59% of 83 sovereign funds expected to raise their allocation to Chinese assets over five years.4
The cause is different, too. The risk can be priced; the credit default swap on Chinese government debt prices it every trading day. What is hard to bear is something else: the asymmetry facing the decision-maker. A chief investment officer gains little from owning China when it goes well. If a holding is frozen, as Russian holdings were in 2022, it can cost them their job. That is not a failure of models. It is a problem of incentives.
That has an important consequence. Tracking error used to force underweight funds back into the market eventually. Benchmarks for “emerging markets ex China” remove that pressure. The number of such funds rose from one in 2020 to 19 in 2023.2 Exclusion becomes stickier and less sensitive to price. But it is also close to its floor. There is little left for the West to sell.
That leaves the decisive question: how cheap is China, really? The MSCI China traded at 12 times trailing earnings and 1.29 times book value on 30 October 2026.5 That implies a return on equity of about 10.8%. Assume 3 to 4% nominal growth over the long run and the price implies a required equity return of roughly 9 to 9.3% a year. The same arithmetic gives about 7.5 to 8% for developed markets. Both are model estimates, but the gap is telling: about 1.5 points. For a market considered untouchable, that is not much. Whether it is enough depends on who is doing the sums.
Five steps to a verdict
Same price, two bills
A freeze does not destroy value. It moves it from the seller who must sell to the buyer who can stay.
A discount is a gift only if the risk behind it is smaller than the price the market pays for bearing it. The risk here is loss of access: sanctions, clearing blocks or a holding ban that separate a Western investor from their securities. China’s sovereign credit default swap stood at about 39 basis points at the end of October 2026. At the peak in October 2022 it exceeded 110.67 Converted roughly, the probability of a broad loss of access is closer to 0.5% a year than to 1 to 2%. That is still not small. The damage ranges from a fire sale at a discount to a total loss, and it arrives exactly when everything else is falling too. A risk that strikes in bad times costs more than its arithmetic expected value.
For a US fiduciary, that cost roughly absorbs the 1.5-point premium. For them the index is fair to slightly cheap, nothing more. But not every investor bears the same risk. How unevenly it is spread became clear in 2022. Western holders of Russian depositary receipts could neither sell nor receive dividends, while Russian companies and banks could pick up the same securities at a fraction of their value.8 The value did not vanish. It changed hands.
This is our verdict. A holder whose custody chain survives a rupture bears a smaller risk, and for them the same price is cheap. That applies to investors on the mainland and in Hong Kong, and to Asian and Gulf investors with direct sub-custody, as long as they invest without leverage. After the risk charge they keep roughly 1 to 1.5 points of excess return a year, more in some segments.
And the European private investor? They are not a US fiduciary. The US sanctions list does not bind them, no benchmark measures them and no investment committee can fire them. Yet they are not entirely free either. Custodian banks reserve the right to refuse Chinese securities without giving reasons, to delay transfers or to strike them from eligible collateral, long before holding them would be illegal.9 They sit between the two bills.
Same price, two bills
Both investors buy the MSCI China at 12 times earnings. What they keep depends on what a loss of access would cost them. All figures are the analysis’s model estimates, per year.
US pension fund
- Required return at a P/E of 12
- 9–9.3%
- minus expected return in developed markets
- 7.5–8%
- = premium for China
- ≈ 1.5 pts
- minus cost of access risk
- ≈ 1–1.5 pts
- Left as excess return
- ≈ 0–0.5 pts
Fair to slightly cheap
Asian investor without leverage
- Required return at a P/E of 12
- 9–9.3%
- minus expected return in developed markets
- 7.5–8%
- = premium for China
- ≈ 1.5 pts
- minus cost of access risk
- ≈ 0–0.5 pts
- Left as excess return
- ≈ 1–1.5 pts
Cheap, paid out as dividends
For the fiduciary, a freeze means a fire sale or a total loss; for the Asian investor, it is a chance to buy more. That is why the same quote carries two different prices.
The biggest avoider is the Chinese saver
Measured against the domestic gap, the Western underweight is a sideshow. Chinese households held only about 11% of their financial assets in equities and funds, according to a Goldman Sachs estimate, against roughly 32% in the US.10 Around RMB160tn sits in bank deposits whose one-year rates are often below 1%.11 Ten-year government bonds yield about 1.8%. The equity market therefore offers a risk premium of roughly 7 points. That is extreme. So why does nobody take it?
Japan knows the answer. Under deflation, cash in the bank earned a positive real return there. Households stayed in cash for about 25 years, even with interest rates near zero. Others moved the market. First came directed institutions: the state pension fund GPIF with its 2014 reallocation and the central bank with its ETF purchases. Governance pressure and the return of inflation followed. The returns came from earnings and payouts, not from higher multiples.
China is following the same route, only with more instruction. Large state-owned insurers have been told to put 30% of new premium income into A-shares since 2025.12 The capital charge on equity holdings was cut by 10% in May 2025.13 An accounting rule keeps price swings in dividend stocks out of reported profit. And companies that hold Hong Kong shares through Stock Connect for at least 12 months can be exempt from tax on the dividends.14
The effect is measurable. Listed insurers held on average 12.4% of their assets in equities at mid-2026, 3.2 points more than a year earlier.15 By our estimate, each additional percentage point is worth roughly RMB350–400bn of demand. But 74% of those equities are high-dividend stocks, a record.12 That is real demand, and also a dangerously narrow concentration.
The flow from the mainland into Hong Kong also points to maturity rather than acceleration. Net buying through Stock Connect rose 74% in 2025.16 In the first nine months of 2026 about $56bn was added, well below the record year’s pace.17 The engine is running, but it is no longer revving higher.
The state runs a reservoir, not a pump
Anyone who reads a rally into the new domestic demand is missing the other half of the system. In weakness, Beijing supports the market. The state holding company Central Huijin buys ETFs, and a central bank relending facility for share buybacks had about RMB440bn committed and more than RMB280bn disbursed by early November 2026.18 In strength, the state opens the sluices. In 2025 about $103bn of new equity was issued in Hong Kong, $17.7bn of it in 19 secondary listings by mainland groups.19 At the end of June 2026 the regulator had 559 listing applications in hand, up 180% on a year earlier.20
A good part of domestic demand therefore funds new shares in strategic industries instead of lifting the valuation of existing ones. For investors this means the floor is firmer than pessimists think and the ceiling lower than optimists hope. The re-rating of dividend stocks is limited and front-loaded. Their dividend yield should fall from 6 to 7% today to 5 to 5.5% by around 2030. That adds 20 to 30% in price on top of the dividend. After that, the dividend is all there is.
Hopes that mainland and Hong Kong prices will converge are similarly bounded. The Hang Seng AH Premium Index stood at 131.5 on 4 November 2026. A-shares therefore cost on average 31.5% more than the same companies in Hong Kong.21 Part of that gap is not a market failure. It is tax law.
Why the gap does not close
A mainland individual who holds an A-share for more than a year generally pays no tax on its dividend. Buy the same company in Hong Kong through Stock Connect and 20% is withheld. Companies and insurers can be exempt from this tax after a 12-month holding period.14 For stocks valued on their dividend, that implies an equilibrium.
| Buyer | Tax | Net of 6% | A/H balance |
|---|---|---|---|
| Mainland individual | 20% | 4.8% | ≈ 125 |
| Mainland insurer or company | none after 12 months | 6% | ≈ 100 |
| AH index, 4 Nov 2026 | mixed | – | 131.5 |
Where individuals set the price, the A-share can therefore cost about 25% more. Where insurers buy, both prices end up roughly level. That is why some dividend stocks in Hong Kong already trade above their A-shares: Postal Savings Bank stood about 19.5% above in early November.22 For the index, a decline from 131 to 115–125 is plausible, not to 100. Only a waiver of the tax for individuals would open the way to parity, and none has been announced. In any case, the exclusion of foreign investors explains only part of the gap. A study of 54 companies found that Stock Connect actually widened the A-share premium.23
Where the discount still lies, and how to collect it
After these deductions, the discount remains in three places. The first is state companies that US investors are barred by law from buying, such as CNOOC and China Mobile. They offer the cleanest test of whether exclusion depresses the price. The same cash flows cost markedly more in Shanghai than in Hong Kong, and part of the gap goes back to the US sanctions list that triggered forced selling and index deletions in 2021.24 CNOOC generated RMB97.4bn of free cash flow in 2025 and paid out RMB60.3bn. The dividend was covered 1.6 times.25 Gearing stood at 8.4% at mid-2025.26 China Mobile’s cushion is thinner: RMB82bn of free cash flow after capex, with a payout ratio that has now reached 75%.27
The second place is overlooked dividend payers: shares that trade only as US depositary receipts or cannot be reached through Stock Connect. Neither the Western fund nor the mainland investor buys here. Access alone, however, does not create a lasting re-rating. The only available event study shows that inclusion in Stock Connect does produce abnormal returns, but that they fade within about 40 trading days.28 You own these stocks for the cash they pay out, not for a re-rating. The third place is Chinese operators domiciled or listed outside China, such as the shipbuilding group Yangzijiang in Singapore.
The same test applies in all three places, because only what can be collected is cheap. Five questions separate return from illusion:
- Have dividends and buybacks been funded from free cash flow for several years?
- Is the diluted share count actually falling?
- Is no payout funded with debt?
- Is little cash parked with group-owned finance companies?
- Does the controlling shareholder’s economic stake match their voting power?
The fourth question removed Haier from the basket. The group proposed parent-subsidiary guarantees of up to RMB38.5bn for 2025 and borrows from its own group finance company.29 Midea takes its place. The fifth question is no formality either. A controller who owns little but decides everything has an incentive to buy out the minority on the cheap. Hong Kong saw 16 privatisations in 2024.30 Anyone who wants to resist needs rights. For Cayman-incorporated companies, a scheme of arrangement requires 75% of the value voting and a majority by headcount of those voting.31 Only holders on the share register have these rights. Holders of depositary receipts should convert them into ordinary shares in good time.
Four bets that fail in transmission
Short A-shares, long Hong Kong
The pair of an A-share ETF against the Hang Seng China Enterprises Index is really a sector bet. The state’s support buyers defend precisely the A-share leg, and the dividend tax limits convergence.
Shorting the STAR market
Beijing needs high valuations on the STAR50 technology board to fund chip fabs cheaply. The board is a policy hostage. Betting against it means betting against the state.
A multi-year bet on a stronger yuan
Futures that bet on a falling dollar against the yuan cost about 2 to 2.5 points a year in carry. China has invested its huge current-account surplus abroad instead of converting it into yuan.
Buying leveraged life insurers
They are the conveyor belt of the reallocation, not its beneficiary. Old guaranteed rates meet reinvestment yields below 2%. Japan’s life insurers failed on exactly this negative spread between 1997 and 2001.
The administered income market: China from 2031 to 2046
China’s stock market becomes an instrument of pension and household policy. Central Huijin and the social security funds defend a soft floor. The securities regulator and the state asset holding SASAC set a soft ceiling with new issuance. Ten-year government bonds yield 1 to 1.5% as ageing deepens financial repression. The main buyers are insurers, occupational pensions and pension products, not households directly. Households’ share of financial assets in equities and funds rises only slowly, from 11 to 15% today to perhaps 18 to 22%. Gold remains a serious competitor.
Companies earn 9 to 11% on equity. The campaign against ruinous competition, known in Beijing as “anti-involution”, administers prices rather than removing excess capacity. So far there is price stabilisation in some sectors but no broad capacity exit.33 Profits concentrate in state-tolerated monopolies and oligopolies. Payout ratios are high and stay high; dividends grow at 2 to 4% in nominal terms.
In this world, the broad index trades at 11 to 14 times earnings. The dollar return is made up of about 3% dividends, 3 to 4% growth, some buybacks and slight yuan appreciation: roughly 6.5 to 8% a year before access risk. Hong Kong effectively becomes the mainland’s offshore market, priced against the alternatives open to a yuan investor. Western capital holds China as a small, budgeted standalone sleeve.
The equilibrium has a quiet weakness. Because the state floor dampens volatility, it attracts strategies that size risk by volatility. Suppressed volatility invites leverage, and that leverage leaves violently once the floor is tested.
The portfolio: cash before hope
18 positions in six groups. The weight sits in dividends covered by free cash flow and in businesses that earn on the flow of money into Hong Kong. The bet on Western capital returning stays a small option. Some names may not be bought by US persons; European investors should check first whether their custodian accepts them.
The Business-Rating scores the quality of the business model, independent of the share price. The Market-Fit-Rating tests eighteen fundamental figures for how well the company currently fits the market; a negative reading implies expected negative performance. The Cycle-Rating places the valuation in the stock’s own history: a higher figure means the shares are historically cheaper. The Leeway-Score combines the three in equal parts. How the ratings are calculated
The recommendations since publication
Not enough trading sessions have elapsed since publication to compute a consistent performance series.
State companies with covered dividends
LongThis is where it shows most clearly whether exclusion depresses the price. US investors may not buy two of the three companies; PetroChina serves as the comparison without sanctions.
Role in the portfolio: Core position for non-US investors and the cleanest test of whether exclusion depresses the price.
Rationale: Free cash flow covered the dividend about 1.6 times in 2025, gearing is low and revenue is linked to the dollar. Western exclusion is written into law and does not respond to price.
Wrong if: Brent stays below $55–60, the payout floor is cut, or the gap to the A-share narrows no faster than PetroChina’s. Then exclusion is not what drives the discount.
Position and what to watch
Position: Buy on oil-price or geopolitical drawdowns, especially around trade-truce deadlines and Taiwan-related dates. US persons may not buy.
What to watch: The gap to the Shanghai A-share (600938) relative to PetroChina, dividend cover, and the share of tax-exempt mainland institutions on the Hong Kong register.
Main risk: Oil prices, terminal value in the energy transition, the sanctions designation itself and possible state pressure on pricing or capex.
Role in the portfolio: Covered dividend engine and the control for CNOOC, with no known sanctions designation.
Rationale: In 2025, about RMB120bn of free cash flow set against roughly RMB86bn of dividends. The Hong Kong line has historically traded at a deep discount to the A-share.
Wrong if: Price controls squeeze margins, the payout ratio falls, or capex is redirected to state supply projects.
Position and what to watch
Position: Hold for the dividend and convergence with the A-share. Before buying, confirm the stock is still on no US list.
What to watch: Refining margins, gas price regulation, the payout ratio and what happens to surplus cash.
Main risk: Commodity cycles, state pricing of fuel and gas, and the energy-transition debate.
Role in the portfolio: Smaller dividend position for non-US investors. It tests whether the state’s need for dividends beats its infrastructure demands.
Rationale: Net cash and a payout tied to performance targets. Exclusion from Western indices explains part of the gap to the A-share.
Wrong if: Free cash flow keeps falling with the payout stuck near 75%, receivables keep rising, or capex picks up again.
Position and what to watch
Position: Lower weight than the oil names. US persons may not buy.
What to watch: Free cash flow, receivables from state customers, and capex on data centres and AI networks.
Main risk: Free cash flow after capex fell to about RMB82bn in 2025. With a 75% payout there is little room to grow, tariffs are set by the state, and mainland investors already own the stock heavily.
Your knowledge edge
Understand the real drivers of our portfolio
Look behind the scenes: see not only what we buy, but why. Get the complete view of our strategy.
- Every position revealed: Access each holding in our portfolio.
- Understand the investment thesis: See the exact role each security plays in our return.
- See the connections: Analyse our long and short strategies in direct context.
Four checkpoints to 2028
| Window | What happens | What it means for the portfolio |
|---|---|---|
| 10 January 2027 | The US–China trade truce reportedly expires. Suspended tariffs, rare-earth export controls and the US rule on subsidiaries of listed entities are either extended or return. | An extension triggers short-covering in the Hang Seng TECH, depositary receipts and MCHI. A breakdown hits ADRs and exporters hardest. Investors who do not have to sell then buy from those who must. |
| March to April 2027 | FY2026 results and the National People’s Congress. Do state companies raise payout ratios while free cash flow still covers them? Do China Mobile’s capex and receivables stabilise? Do the overlooked dividend payers keep cutting their share count? | Good answers support a further fall in dividend yields. Weak telecom numbers argue for rotating towards oil producers, Hong Kong’s exchange and AIA. |
| October to November 2027 | The 21st Party Congress of the Communist Party: personnel and the line on the private sector, capital markets and Taiwan. | Support rallies before party congresses are common. Whether private companies will be allowed higher valuations is decided here. The base case does not expect it. |
| January and November 2028 | Presidential elections in Taiwan and in the US. | The main windows for repricing the risk of a freeze. Western underweights deepen under stress and are closed in haste on détente. If prices gap down, it is the best buying window of the decade for investors who do not have to sell. |
Four paths to 2046
| Path | Weight | What happens |
|---|---|---|
| Bull: a domestic re-rating | 18% | Dividends prove dependable through a downturn, deposit rates fall towards 1%, payout rules entrench and the trade truce holds. Required returns fall across the market and the index re-rates to 15 to 17 times earnings. The A/H premium drops below 115, helped by a tax waiver. |
| Base: the administered income market | 50% | Segmented, with a state floor and an issuance cap. The index trades at 11 to 14 times earnings, dividend yields fall to 5 to 5.5% by around 2030 and the A/H premium settles at 115 to 125. Investors with low access risk earn roughly 1 to 2 points of excess return a year, depending on the segment. |
| Bear: deflation and state extraction | 20% | Deflation keeps deposits positive in real terms and households hoard. Fiscal stress steers the cash of state companies and banks into bailouts and mandates. Telecom and bank payouts stall, accessible claims trade at 7 to 9 times earnings, and the dividend trade unwinds. |
| Tail: geopolitical loss of access | 12% | A blockade of Taiwan, clearing sanctions or a broad US holding ban forces Western divestment or freezes holdings. Value transfers to domestic holders. Excluded names and depositary receipts are impaired for Western custodians; Hong Kong-held positions with Asian custody are hit less. |
Counter-arguments and Risks
The strongest counter-argument turns the arithmetic on its head. Chinese savers do not need Western-style governance. It is enough for equities to become more credible than the alternatives, and the alternatives are getting worse. Years of dependable dividends, deposit rates near 1%, a credible floor from Central Huijin and lower volatility could cut required returns across the whole market, not just in dividend stocks. With a return on equity of 10.8%, a fall in the domestic risk premium from about 7 to 4.5 points would justify a P/E of 16 to 18. New shares would then fund productive investment, and the crowding into dividend stocks would be the beginning of institutionalisation, not its end.
On that path the broad index is materially undervalued today. A strategy that only collects cash would miss a multi-year re-rating. Korea shows that such a shift is possible, and also how slow it remains. Since 2024 the Value-up programme has mainly delivered a re-rating on expectations. It has held where companies actually paid out more and cancelled treasury shares.34 Japan’s more binding “comply or explain” approach had the stronger mechanism. China’s campaign so far relies on voluntary discipline. We found no general, binding requirement to raise payouts.
Unresolved Market Factors
Three questions remain open. The first matters most. Does financial repression lower required returns faster than deflation, mandated investment, unpaid receivables and state extraction erode the cash available for distribution? Japan says repression under deflation does not move savers. China’s instructions to its insurers say institutions can be moved regardless. Only several years of covered payouts through a commodity or credit downturn will settle it. China Telecom shows where the strain lies: in 2025 its operating cash flow fell 13.8% while receivables rose by RMB16.3bn.35
The second: do the discounts on overlooked dividend payers and stocks outside Stock Connect reflect their exclusion, or simply lower quality and liquidity? That is unproven. Settling it would require comparing similar companies just above and just below the inclusion threshold.
The third: neither balance sheets nor credit spreads reveal the probability and severity of a loss of access. The choice of custody reduces that risk but does not eliminate it. That is why the verdict for Western holders stays between fair and slightly cheap, and why our conviction, at 42 out of 100, sits below the halfway mark.
Five measurements
- The A/H gap for CNOOC and China Mobile relative to dual listings without a sanctions designation. This is the direct measure of the exclusion effect.
- The Hang Seng AH Premium Index against the tax-implied floor of about 125 for dividend stocks held by individuals.
- Insurers’ equity allocation (12.4% at mid-2026), the share of high-dividend stocks (74%) and investment income against the cost of old guarantees. A rising allocation with stable concentration means broadening; rising concentration with falling income means crowding.
- Free-cash-flow cover of dividends at CNOOC, PetroChina and China Mobile, together with receivables and capex.
- The supply of new shares in Hong Kong, meaning secondary listings, placements and convertibles, against demand through Stock Connect.
When the arithmetic fails
If any of these conditions becomes permanent, the affected position is closed.
- State-company payout ratios hit their ceiling while free cash flow no longer covers the dividend.
- The A/H gap for CNOOC and China Mobile narrows no faster than for comparable stocks without a sanctions designation.
- The overlooked dividend payers stop reducing their share count or fund payouts with debt.
- Washington moves towards a general ban on US persons holding Chinese securities.
Sources
- Goldman Sachs: EM Weekly Fund Flows Monitor, 4 September 2026 (via Finvaulta)
- FTSE Russell: What’s behind growing investor demand for emerging markets ex China
- The Business Times: China fast losing its place in must-have global portfolios
- OMFIF: Outlook 2025, are global public investors abandoning China?
- MSCI: MSCI China Index, characteristics as of 30 October 2026
- World Government Bonds: China five-year CDS, historical data
- Reuters: China CDS hit highest in more than five years, 11 October 2022
- Reuters: Russian companies, banks could reap windfall from depositary receipt rule, 14 April 2022
- HSBC Hong Kong: China Connect terms and conditions
- Yahoo Finance: The real force powering China’s market
- World Bank: China Economic Update, December 2025
- Huachuang Securities: room to raise insurers’ equity limits, October 2026 (via Futu)
- Fitch Ratings: Reduced capital charges to spur Chinese insurers’ equity investments, 11 May 2025
- HKEXnews: notice on dividend taxation for Stock Connect investors, 2026
- Futu News: Insurance capital positions have reached a point of divergence
- Hong Kong Monetary Authority: Quarterly Bulletin, March 2026, chapter 4
- Futu News: monthly tracking of capital flows into China and Hong Kong equities
- China.org.cn: central bank and securities regulator on market-support tools, 3 November 2026
- HKEX Insight: ECM performance in 2025
- Securities and Futures Commission: quarterly report, April to June 2026
- Hang Seng Indexes: Hang Seng China AH Premium Index
- Futu News, Zhitong: A/H statistics for 3 November 2026
- Applied Economics Letters: Stock Connect and the A-share premium, 54-firm panel
- Barron’s: Still own blacklisted Chinese stocks? Why investors may be in limbo
- CNOOC Limited: 2025 annual results presentation
- CNOOC Limited: 2025 interim results presentation
- China Mobile: 2025 annual results press release
- Asia-Pacific Financial Markets: event study of Stock Connect inclusion (2023)
- Haier Smart Home: circular on 2025 guarantees, HKEXnews
- HKU Business School: The hidden secrets behind Hong Kong stock privatizations
- Conyers: Cayman schemes of arrangement for privatisations of Hong Kong-listed issuers
- SAFE: China’s balance of payments for 2025, 27 March 2026
- European Parliament: study on China’s overcapacity, 2026
- AMRO: Narrowing the Korea discount, stock market reform via corporate value-up
- China Telecom: 2025 annual report
How this analysis is produced
The assessment is produced in several steps. Independent model families answer the same question separately and then attack the results. What you read here has survived several rounds.
- Two independent first theses. The same opening question goes to several model families that cannot see one another. Disagreements are kept, not averaged away.
- Dated evidence. Every claim that depends on facts is broken into individual search questions and answered with dated, sourced web research. Question, answer, sources and timestamp are logged and remain traceable.
- Adversarial review. Several review roles attack the thesis from different angles: one hunts for the strongest refutation, one for the awkward edge cases, one tests whether a path from thesis to share price exists at all, one checks the timeline for contradictions. Each role raises its own questions, which are again answered with evidence.
- Merge, then the next round. The surviving theses are merged into one and attacked again. The counter-position and the unresolved tension on this page come out of that step. They were not bolted on afterwards to look balanced.
- Back to the start. The process runs again until there is a clear result and a list of tradable companies with structural advantages.
Any analysis can be wrong. That is why the falsification criteria and the counter-position sit on the same page as the thesis, not in the small print.
The numbers shown against individual companies do not come from this process. The Business-Rating scores business-model quality, the Market-Fit-Rating eighteen fundamental figures against the current market, the Cycle-Rating the valuation against the stock’s own history. They are documented under the Leeway scores.
Key questions before buying
Can European investors buy CNOOC and China Mobile?
The US NS-CMIC list binds only US persons: US citizens, green-card holders, anyone in the United States and US companies including their foreign branches. It does not apply to an investor resident in Germany or elsewhere in Europe with no US nexus. Many banks block the stocks anyway, because they are themselves subject to US rules or set their sanctions filters broadly. Before buying, ask your bank whether it can execute, hold and pay dividends on these Hong Kong shares.
Why would better market access not lift prices?
The only robust event study finds that inclusion in Stock Connect produces abnormal returns that disappear within about 40 trading days. Exclusion has no average effect. Access moves the price only briefly; the return comes from the cash companies pay out. Price jumps after index reviews are therefore better opportunities to sell than to buy.
What does “not having to sell in a crisis” mean for a private investor in Europe?
It describes an investor who does not have to sell in a crisis and whose securities are not tied to a Western block. A European private investor is not a US pension fund: neither the US list nor a benchmark binds them, and they invest without leverage. But they hold through Western custody chains that are subject to EU sanctions. They therefore sit between the two bills. The practical consequences: keep positions small, avoid leverage, prefer Hong Kong lines and plan on the dividend as the return, not a re-rating.
How to put the strategy to work
First, check whether your custodian accepts shares from Hong Kong and Singapore as well as the NS-CMIC names. Second, build the core from companies whose dividends are covered by free cash flow, not from growth stories. Third, run every small position through the five checks once a year. Fourth, keep the bet on a Western return small and hold back buying power for the dates when others are forced to sell. With Leeway you can check business quality, valuation and ratings for every position.
Company Valuation and Fundamental Analysis
The data is recalculated on a weekly basis and depends on the current market value of the company and the balance sheet figures of the annual financial statements. The market value changes continuously with price changes, the balance sheets are created annually and change the valuation massively. The time of the annual financial statements and the metrics used can be viewed under "Metrics". Further information on how the analyses work can be found as tooltips directly on the analyses as well as in our explanations.
General
The information is intended to support you in your independent decision-making in implementing investment strategies and serves purely informational purposes. Past performance is not a reliable indication of future performance. No warranty can be given for the completeness, correctness and accuracy of the listed content. The information does not constitute specific investment recommendations. We neither know you nor your financial situation and do not provide investment advice. Only licensed investment advisors with knowledge of your personal circumstances may do this. PWP Leeway UG (limited liability) is not an investment advisor and does not collect any personal data for the purpose of investment optimization. PWP Leeway UG (limited liability) is a provider of investment recommendations and investment strategy recommendations. As such, it is registered with and supervised by the Federal Financial Supervisory Authority (BaFin). The legal notices on the use of the website and the General Terms and Conditions of PWP Leeway UG (limited liability) also apply.
All price data are closing prices of the respective stock exchanges. Price information and master data are provided by an external service provider. Furthermore, public trading data, such as provided by Finra.org, is used to analyze market behavior. No warranty can be given for the completeness, correctness and accuracy of the listed content.
Disclosure of interests: To the best of our knowledge, Leeway and the persons responsible for creating or publishing the respective content do not hold a net long or net short position exceeding 0.5% of the issued share capital of any issuer discussed in that content at the time of publication. There are no other interests or business relationships that could conflict with objectivity, unless expressly stated otherwise in the respective content.
