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(Bloomberg) — Buy Contemporary Amperex Technology Co.’s Shenzhen-traded shares and sell their Hong Kong-listed peers, as the expiry of a sales ban on some early key investors approaches, according to JPMorgan Chase & Co.
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The cornerstone investors of the Chinese battery maker’s Hong Kong listing in May will be able to sell their holdings starting Nov. 19, potentially unleashing nearly 50% of the company’s so-called H shares outstanding, the US bank’s sales and trading desk wrote in a note. The expiry may act as a key catalyst for reversing the H shares’ premium over their onshore counterparts, according to the note.
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CATL’s Hong Kong-traded stock has surged 116% since its debut six months ago, versus the 60% gain in its Shenzhen-listed A shares in the same period. Its H shares are now about 25% pricier than their onshore peers after adjusting for exchange rates, Bloomberg-compiled data show, marking a rarity as A shares typically command a premium over their Hong Kong peers for most dual-listed companies.
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Among the supporting factors for the trade recommendation are likely muted demand for the world’s top battery maker’s H-shares given their premium and valuation concerns, JPMorgan wrote. The bank’s preference for CATL’s A-shares also comes as investor confidence grows in the battery sector’s demand outlook, especially that for the energy storage system.
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READ: CATL’s 46% Rise in Hong Kong Sends Premium Over China to Record
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“The current level looks compelling with CATL A/H being the lowest premium pair in the entire A/H universe and limited downside from here,” according to the JPMorgan note. Investors already with H-share positions could consider rotating into their mainland-listed counterparts, it added.
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The US bank also noticed “surging short demand” for CATL’s H shares heading into the expiry of the cornerstone investors’ stock lock-up period, with approximately $1.5 billion of short positions outstanding and the bulk of them tied to the A/H-spread trade.
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“Admittedly this is an extremely crowded trade,” JPMorgan added. “There is also high recall risk on the H-shares given extremely high utilization, although we do expect some of this to ease post lockup expiry.”
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NOTE: Play CATL A/H Normalization on Lock-Up Expiry: UBS Sales Desk
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