“Chinese stocks are losing their premium over their Hong Kong counterparts,” aptly describes the market situation where the premium of stocks traded on mainland China’s exchanges has decreased due to a potential dividend tax exemption for securities purchased through a trading link with Hong Kong. The Hang Seng Stock Connect China AH Premium Index, which tracks the price difference between the largest shares listed in both markets, has fallen more than seven percentage points this month. Stocks on mainla…

The premium, which had been increasing on average for four consecutive years through to 2023, could narrow further with China considering a proposal to exempt Hong Kong stocks from dividend tax. Mainland investors, who have been active buyers of Hong Kong stocks this year, may increase their interest in dividend stocks, which would become even more attractive if taxes are abolished.

As the stock premium decreases, the Hang Seng Index is on track for its third consecutive week of gains, adding up to 2.5% on Friday. The positive sentiment is supported by regulators’ actions aimed at promoting Hong Kong’s financial status and enhancing market liquidity.