What it is:
H-shares areof Chinese companies that are listed on the Hong Kong Exchange.
How it works (Example):
Hong Kong is a "special administrative region" of China. It was a British colony from the 1830s to 1997. Despite China's status as a communist country, Hong Kong is a major center of global capitalism and is a large financial center.
H-shares are denominated in Hong Kong dollars and are included in the Hang Seng China Enterprise.
Why it Matters:
In 2007, China allowed mainland Chinese investors to buy H-shares. Previously, these investors were only allowed to buy Shanghai-listed A-shares of listed companies (many of which were the same companies as those issuing H-shares). Foreign investors can buy and trade H-shares, which makes them more liquid than A-shares. Accordingly, the spread between the A-shares and H-shares of the same company can be very high.