The first mutual fund based in the Chinese mainland that has gained access to the Shanghai-Hong Kong Stock Connect program said that stocks in the city are still cheap, even after surging to seven-year highs.

Mainland shares listed in Hong Kong will probably outperform their mainland-listed counterparts because valuations are lower, said Linda Xie, the manager of the IGW China-HK Selected Equity Fund, which raised 11 billion yuan ($1.78 billion) in 19 days after opening it to investors on March 26.

Dual-listed stocks on Chinese exchanges are about 25 percent more expensive than those in Hong Kong, according to the Hang Seng China AH Premium Index.

Speculation that mainland-based mutual funds will pile into Hong Kong equities has propelled the Hang Seng China Enterprises Index of H shares to a 24 percent gain since March 27, when regulators said they expanded the types of funds eligible to access the link.

Even after its rally, the gauge is valued at 10 times estimated earnings, versus a multiple of about 14 for the MSCI Asia Pacific Index.

"Low-valuation, big-capitalization H shares that have big discounts to A shares and good liquidity will realize above-average returns," said Xie, who is a fund manager at Invesco Great Wall Fund Management Co in Shenzhen. She favors companies in the Internet, electronics manufacturing and consumer industries.

Invesco's fund is the mainland's first actively managed mutual fund with a mandate to invest in H shares through the Stock Connect program.

Domestic money managers no longer need to be part of the Qualified Domestic Institutional Investor program to use the link, the China Securities Regulatory Commission said in a statement on March 27.

The program is open to wealthy mainland individuals and some index-tracking exchange-traded funds. Net inflows into Hong Kong through the link have totaled 38 billion yuan since March 30.