Shares traded in Hongkong and Shanghai

A stockbroker sent me a list of more than 20 shares traded in Hongkong and Shanghai. They are probably the larger corporations in China.

The share prices in Hongkong showed a discount of 40% to 88% to the Shanghai price. The average is 64%. This means that, on average, the prices in Shanghai are about 2.8 times of Hongkong.

Either the prices in Hongkong are too low, or the prices in Shanghai are too high. It is likely to be the latter.

Investors in China will soon be allowed to buy shares in Hongkong. What will happen to the share prices? Will the Shanghai prices collapse to the level in Hongkong? Or will Hongkong prices move close to Shanghai?

My guess is that the prices in both Shanghai and Hongkong are over-valued. But, this is China fever.

My stockbroker thinks that the prices of these shares in Hongkong will move up (it is called arbitrage), but not to the same level as Shanghai. He is probably right.