China’s merged railway construction companies have more than tripled in price during the past 12 months on the Hong Kong stock exchange, leading a rally that Bloomberg describes as “a frenzy of buying by mainland investors.” The mainland ought to buy: the discount between Hong Kong and mainland share valuations ranges from just 7% for Ping An insurance to 15% for Bank of China, 27% for China Life, and 36% for Citic Bank. China’s “One Belt, One Road” scheme for hundreds of billions of dollars of investment and trillions of dollars of additional trade across the European land mass is one of the great value-creating propositions in memory. And convergence between A- and H-shares is the trade of the day. Now that mainland mutual funds will be able to buy Hong Kong shares, valuations ought to equalize. And the convergence seems to occur almost entirely in the form of upside for Hong Kong.

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