Cheap China: Is Hong Kong the best way in?

Sharp falls in Hong Kong-listed shares mean investors are now increasing their exposure to China via this route, even as the onshore market opens up further to foreign investment.

Over the past month, pro-Democracy protests have spooked investors holding Hong Kong-listed companies, with the Hang Seng index down 7.6%. The index is almost entirely populated by companies which derive their profits from China, but a sizeable gap has opened up between Hong Kong and mainland China indices. The Shanghai composite index is up 2.4% over the month, and 12.5% year to date compared to a 1.2% gain year to date for the Hang Seng. P/E ratios also look more attractive for Hong Kong shares, with the Shanghai Composite currently on a trailing P/E ratio of 10.7x earning, compared to...