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B shares open
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Yang Yunfei
CHINA announced on Monday that its hard currency B share market, technically reserved for foreign investors but traded mainly by local investors through regulatory loopholes, would be opened to domestic investors too.
The China Securities Regulatory Commission (CSRC), the market watchdog, said that domestic individual investors with legal foreign currency deposits would be allowed to trade B shares.
This move is seen as the latest in a series of efforts by China to reform its financial markets before its entry into the World Trade Organization, expected later this year.
Analysts said that this move could pave the way for the eventual merger of the domestic A shares, currently off limits to foreigners, and the hard currency B shares markets.
"This is one step closer to an eventual merger between the A shares and B shares," said analyst Yang Jun at Shenyin & Wanguo Securities.
Hopes that the 114-counter, nine-year-old market would be merged with the A share market plus an expected series of reform measures helped B shares outperform the world's bourses last year when Shanghai B shares soared 136.21 per cent while Shenzhen shot up 62.64 per cent.
But Yang said that the lack of full convertibility of China's currency on the capital account made it impossible to merge the two markets in the short term.
The yuan can be converted only for trade in goods and services on the current account, while the capital account, covering investment, remains tightly controlled.
Xinhua said on Monday that a detailed scheme was being worked out by the CSRC and other authorities and would be implemented soon.
The Shanghai and Shenzhen stock exchanges suspended trading in B shares from Monday afternoon until Friday to allow them to make technical and other preparations before reopening the markets to investors on Monday next week.
A CSRC spokeman said that the opening up of B share markets was necessary due to obvious changes in the flow of foreign currency capital in China.
China's outstanding personal foreign exchange deposits reached US$74.93 billion in January, up 31.9 per cent from the same month last year. Domestic companies and institutions held another US$55 billion in bank deposits, official statistics said.
Analysts predict that the market relaxation will open the floodgates to local cash and unleash a flood of liquidity into the B share markets.
Investors also cheered the opening up of the cheaply valued but tiny B share markets, eyeing the sharp price gap between the two classes of shares. B shares are about 70 per cent cheaper, despite having the same earnings and dividend payouts from the same companies.
"Many investors came to make inquiries," said a staffer at China Eagle Securities yesterday afternoon.
But domestic A shares ended lower yesterday, pulled down by worries of a possible liquidity outflow.
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