Mainland investors hunt for stock bargains in Hong Kong

Stock investors are finally seeing value in domestic shares, but there's a twist: instead of wading back onto battered onshore exchanges, they've gone shopping for bargains in Hong Kong.

By doing so they are exploiting a long-standing market distortion that means the average share price of a dual-listed Chinese mainland company is currently 40 percent lower in Hong Kong than in Shanghai or Shenzhen.

The Hang Seng China Enterprises Index now trades at an average price-to-earnings ratio of slightly more than 6, much cheaper than broader Asian markets, which trade around 13, and the cheapest the HSCE has traded since December 2001.