Expectations are growing that the Chinese 'A' share market is to be opened up to foreign investors, ...
Expectations are growing that the Chinese 'A' share market is to be opened up to foreign investors, bringing the prospect of a 'B' share price rise.
The prospect of this change has already caused a massive rise in the 'B' share index since the start of the year, because opening up the market should push the two classes to parity. At present, 'B' shares trade at a discount to 'A' shares.
Anthony Neoh, chairman of the Hong Kong Securities and Futures Commission and adviser to the Chinese authorities, hinted in late July that the system will be changed into something more like that in Korea or Taiwan, with the existence of Qualified Foreign Institutional Investors certification.
Joseph Mariathasan, manager of CGU's Greater China fund, said: "China has a closed capital system, so it needs to control the amount of foreign investment in the country. The unusual 'A', 'B' share system, where foreigners have access only to the dollar and Hong Kong dollar denominated 'B' shares, fell flat.
"Institutional investors lost interest and now something like 60% of the 'B' share market is owned by Chinese that have managed to get hold of foreign currency.
"The 'B' share market has languished. There are 110 companies listed and they trade at a discount of up to 70%-80%. It is clear that they need to reform the structure.
"If it were this simple, of course, the market would already have discounted this news and 'A' and 'B' shares would be equally valued."
Mariathasan, who is responsible for a 'B' share tracker, is happy at the prospect of a huge performance increase, but dubious about the timescale.
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