Interesting A-H pair trades

The following note was published in our November newsletter. All data are as of 30 November 2025.

We closely monitor A–H cross‑sectional and time‑series discounts and premiums. Based on this analysis, we trade actively, with the vast majority of trades initiated intra‑day.

Currently, the most interesting A-H trades are in the banking sector.

China Merchant Bank’s H-share currently trades at more than a 10.7% premium to its A-share. It’s the only Financials H-share that trades at a premium.

The H‑share premium has been increasing and is now almost one standard deviation above the three‑month average, and more than 1.5 standard deviation above the six‑month and twelve‑month averages.

Bank of China is at the other end of the spectrum. Its H-share currently trades at a 30% discount to its A-share.

Previously, I’ve highlighted Agricultural Bank of China, whose H‑share is trading at a slightly larger discount - but the A‑share borrow inventory has now dried up. In contrast, Bank of China’s A-share can be shorted at the remarkably low rate of 5 basis points per annum.

Bank of China’s H-share discount is almost 1.6 standard deviations above the 3-month average and more than 1 standard deviation above the 12-month average.

The following chart illustrates the pronounced relative mispricing between the A and H shares of China Merchants Bank and the Bank of China. It shows each company’s A–H share price ratio, along with the mean and standard deviation bands using daily data over the last 7 years.

Chart 1: BOC and CMB A-H Ratio (2018-2025) _{Source: OQFM, Bloomberg}

The trade involves going long China Merchants Bank’s A‑share and Bank of China’s H‑share, while going short China Merchants Bank’s H‑share and Bank of China’s A‑share.

In addition to targeting the current extreme A–H relative mispricing, the trade offers a couple of other attractive characteristics:

• Positive carry: the dividend yield differential exceeds the cost of borrow.

• Neutral exposure: the overall net exposure to A‑share and H‑share financials is effectively neutralised.

This trade represent one of the most compelling alpha‑generation opportunities I’ve seen in years.