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A and B Share Markets May Merge

Following the recent reforms of the stock market [1]in China, one of the big questions is…will they or wont they merge the A and B share markets? It is not the first time this has been suggested, and the punters have got it wrong before, but new rumours have resulted in recent gains for the US dollar-traded B shares. Bloomberg reports:

These latest rumours follow reforms in 2001, when local investors were allowed to start investing in B shares, and in 2003 when rules were introduced to allow qualified foreign institutional investors (QFII) to buy A shares (which were previously restricted to local investors).

China Economic Review includes a note on possible timing of such a move, and quotes John Wang, a partner at Pinpoint Asset Management as saying that “the market now thinks this is going to happen before the end of the year”. A report in China Daily suggests that might be on the right tracks – thought the following denial was swift:

Could the local markets be looking to the future? The FT thinks so, and has reported on a Credit Suisse report that predicts:

The positive signs are already appearing, and the FT notes that “the Shanghai composite index is up 45 per cent in 2006”. With better regulation and valuations locally, more big companies may choose (or be guided) to list on the mainland rather than in Hong Kong.

Whether or not the A-B merger happens this time, I suspect that we will see more small steps towards the ultimate goal of a healthy and competitive local stock market that helps to create value – and keep it safe at home.

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