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The shares of Hong Kong-listed pharmaceutical companies serving the mainland China market have enjoyed strong gains since April. Photo: EPA

More gains are likely in store for Hong Kong healthcare shares that have been flying high since a move to allow mainland mutual funds to buy in the city’s stocks under the through train scheme ignited a market boom.

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That’s the view of Macquarie Research, which expects to mainland institutions to boost their participation in the Hong Kong market under the tie-up with the Shanghai bourse.

“Chinese mutual fund buying through the Shanghai-Hong Kong Stock Connect will focus on undervalued (compared to A shares) quality stocks that are not available in the A-share market and buy deeply discounted dual-listed H-shares with well-understood stories, Macquarie says in a report.

“Healthcare stocks listed in Hong Kong are trading significantly lower than their A-share counterparts.”

Shares of Hong Kong pharmaceutical and traditional Chinese medicine firms are trading at discounts of 30 to 35 per cent to their A-share counterparts, says Macquarie, noting that such stocks have been among the beneficiaries of the bull run since April.

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“In the year to date, we have seen Hong Kong healthcare stocks increase in valuation from 19 times to 22 times forward rolling 12-month price-earnings ratios,” the report says. “ Even though Hong Kong healthcare stocks have surged 24 per cent year to date, the average valuation of 22 times 12-month forward rolling price-earnings ratio is still significantly below the 35 times of A-share healthcare stocks.”

Healthcare stocks listed in Hong Kong are trading significantly lower than their A-share counterparts
Macquarie Research
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