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I am interested in investing in the Industrial and Commercial Bank of China (ICBC), which is listed both on the Shanghai and Hong Kong stock markets.

Since I only can trade in the Hong Kong stock market, I would like to know why there is a big difference in the current price and historical prices for the same stock on two different stock exchanges:

Is 1 ICBC share on the Shanghai stock exchange equivalent to 1 share on the Hong Kong stock exchange?

If not, why there is a huge difference in their current price? Their historical prices look different too.

At the moment:

  • 4.04 Chinese yuan = 4.70 Hong Kong dollars
  • 5.00 Chinese yuan = 5.93 Hong Kong dollars

ICBC's Shanghai stock price is now near its lowest (its highest is around ¥8). ICBC's Hong Kong stock price is now near its highest (its highest is around $7).

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Wikipedia talks about the Chinese currency:

Scholarly studies suggest that the yuan is undervalued on the basis of purchasing power parity analysis.

so despite it appearing cheaper due to the official exchange rate, the price in China might actually be fair. There are also restrictions on foreign exchange (purportedly "to prevent inflows of hot money"), which, in concert with any other legal obstacles to owning or trading on the Chinese exchange, may also explain why the high-frequency traders aren't tripping over each other to arbitrage away the difference.

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These markets are independent, just like any other stock market. For example, there are stocks on the Milan stock exchange that are also on the New York stock exchange and have different historical prices. Remember, this is all about offer and demand.

The Hong Kong stock exchange has the Hong Kong Dollar as its currency, which is anchored to the USD. Also, there is more trade going on, on the Hong Kong stock exchange.

As for the answer, I don't know whether these stocks are exactly the same. I guess they should be, but maybe somebody else could answer that.

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