Following the recent reforms of the stock market 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:
“‘There are rumors going around the market that the securities regulator is studying a merger between A and B shares’, said Zhang Qi, a market analyst with Haitong Securities in Shanghai. ‘If a merger takes place, holders of B shares will benefit’.”
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:
“Zhou Qinye, executive vice-president with Shanghai Stock Exchange, said that the exchange would hopefully start a trial program for some B-share companies this year…’Companies may be allowed to buy back B shares or swap them for local currency A shares,’ Zhou said…However, exchange spokesman Chen Ji later denied that the exchange would start any trial program.”
Could the local markets be looking to the future? The FT thinks so, and has reported on a Credit Suisse report that predicts:
“Mainland China’s stock markets will witness “a big bang” over the next five years that will see their market value quadruple and reduce the importance of Hong Kong, according to a report by Credit Suisse”.
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.
“Of the 53 Chinese groups with a market capitalisation of more than $3bn, 29 of those are only listed overseas, most of those in Hong Kong. Credit Suisse said those companies would account for a large part of the $94bn it expected Chinese groups to raise on mainland markets by 2010.”
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.
See news sources:
Merger talk spurs B-shares 
By Zhang Shidong Bloomberg News
International Herald Tribune
B-shares shoot up amid merger talk 
China Economic Review
Merger rumours push up B shares 
China set to erode HK dominance 
Mainland China’s stock markets will witness “a