As the greenback continues to loses altitude, with little sign of come back anytime soon, global investors are asking: will a weaker dollar finally deliver a boost to Chinese A-shares, or will the benefits be more muted this time around?
“A weaker dollar is positive for global equities, EM in particular. Based on the beta over the last decade, UBS calculates that 10% off the DXY adds 9% to EM’s relative performance.”
But for China’s A-shares, the benefit may be limited. Foreign ownership makes up just 3.4% of the market cap in China’s A-shares as of end-Q1 2025, so any boost from weaker dollar-driven inflows remains modest, UBS said. A-shares account for only 17% of the MSCI China Index, underscoring their relatively small footprint in global portfolios.
Sectors with high exposure to USD-denominated debt—such as home appliances, transportation, non-ferrous metals, and electronics—are likely to receive the biggest earnings boost from a weaker dollar, as their financing costs ease.
For investors tracking cross-border market dynamics, UBS points to the “A/H premium”—the price gap between a company’s A-shares, traded in Shanghai or Shenzhen, and its H-shares, traded in Hong Kong. The A/H premium serves as a barometer of cross-border sentiment and liquidity, reflecting how much more (or less) investors are willing to pay for the same company in the two markets.
“The A/H premium has closely tracked the DXY over the past 15 years, with a correlation coefficient of 0.83,” the analysts said. While it may seem counterintuitive, given the HKD’s peg to the USD, the premium tends to rise when the dollar strengthens—driven more by differences in onshore and offshore liquidity than by direct FX effects. H-shares, with their greater weight in emerging market indices, have benefited more from recent global fund inflows, while A-share liquidity remains constrained.
3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or remove ads. Looking ahead, UBS expects the A/H premium to “stay at the bottom of its medium-term range” in the second half of 2025, unless there is a significant pickup in A-share liquidity. Southbound flows into Hong Kong-listed shares have surged, but incremental liquidity into A-shares has been limited, suggesting any boost from a weaker dollar could remain contained.
