China’s new stock market plans fuel fears of a war on the stock markets

SHANGHAI, Sept. 3 (Reuters) – China’s plans to launch a new exchange in Beijing, announced by President Xi Jinping on Thursday, boosted the shares of Chinese brokers, but destroyed Shenzhen ChiNext’s start-up board and Hong Kong stock market shares amid fears of increased competition.

Although China’s stock regulator said the planned Beijing Stock Exchange is based on the city’s new existing third board and complements the Shanghai and Shenzhen stock exchanges, some fear the rivalry for quoting resources will be inevitable.

“The Beijing Stock Exchange is on an equal footing with the Shanghai and Shenzhen stock exchanges. If it thrives, the three will share the market in a tripartite confrontation,” wrote Rock Jin, economist and CEO of investment adviser PopEton.

While it was good news for the economy, it turned out badly for the market in the short term because “after all, it diverts capital from the Shanghai and Shenzhen markets.”

Xi revealed plans for the new exchange at a video address at the opening of a conference on Thursday afternoon. The scholarship will serve innovative small and medium-sized enterprises (SMEs) and is part of a reform of the new third Beijing board. Read more

Neither Xi nor the China Securities Regulatory Commission (CSRC) said the Beijing Stock Exchange would attract foreign-listed companies. If that’s the case, it would “increase competition” on the Hong Kong Exchanges and Clearing Ltd (HKEx) listings, Jefferies said in a note.

Shares of HKEx (0388.HK) fell more than 2% on Friday and that of Shenzhen’s ChiNext (.CNT) fell more than 1%, yielding less than the overall market.

But brokerage shares, including Northeast Securities Co. (000686.SZ), Dongxing Securities Co. (601198.SS) and Shenwan Hongyuan Group Co. (000166.SZ), jumped as investors bet they will benefit from more public offerings. initials (OPI).

“This is a step forward in capital market reforms as it improves the multilayered capital markets system and direct financing,” Morgan Stanley said in a note.

The bank added that the implementation of a listing-based mechanism on the Beijing Stock Exchange paves the way for the deployment of the listing system to the main Chinese councils. Currently, only the Shenzhen ChiNext and the Shanghai technology-focused STAR market adopt the US-style IPO system.

FINANCING DIFFICULTY

China launches new stock exchange as part of efforts to channel more household savings into the stock market to finance innovation and economic recovery, while reducing the economy’s reliance on bank loans. It also occurs when Chinese companies listed in the United States face the risk of withdrawing the list amid Sino-US tensions.

“The difficulty of financing is the main challenge for SMEs,” wrote Liu Hui, fund manager at Invesco.

“Supporting directly funded SMEs helps promote China’s consumption, as SMEs account for most of the workforce in China.”

CSRC said on Friday that the new stock exchange will be based on the current “select level” of the new third Beijing board, meaning the 66 companies listed at that level will be transferred to the Beijing stock exchange.

The CSRC also announced a draft of rules for the sale of shares, trading and withdrawal of the new site. Companies listed on the Beijing Stock Exchange are “smaller and newer” than those listed on Shanghai and Shenzhen, and eligible companies can also migrate to the other two courses without problems, CSRC official Zhou Guihua said Friday .

In addition, only qualified investors can trade on the Beijing Stock Exchange, which sets a higher limit in line with the higher risks involved in investing in SMEs, he said.

Zhou also promised to crack down on insider trading, stock manipulation and false disclosure, in order to promote a long-term rational investment in the new board.

The new third board, which was created in 2013, currently hosts a total of 7,299 SMEs, mostly from the “base level” and the “innovation level”.

The board once attracted more than 10,000 listed companies in 2013-16, but the market has suffered from a lack of liquidity since China’s spectacular 2015 market boom.

Economist Jin said it was a big question whether the new exchange would thrive, as “Beijing city does not have the right culture for an exchange.”

Reports by Samuel Shen and Andrew Galbraith; Edited by Stephen Coates and David Evans

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