B shares tumble on talk of international board

PUBLISHED : Thursday, 01 December, 2011, 12:00am
UPDATED : Thursday, 01 December, 2011, 12:00am


Mainland B shares fell sharply yesterday as speculation about an imminent launch of an international board caused a sell-off amid worries that the tiny market would be marginalised.

The Shanghai B-Share Index dropped 6.13 per cent - the biggest single-day drop since June 9. The panic-selling also affected the A-share market, with the Shanghai Composite Index closing 3.27 per cent lower.

'The B-share market has been a legacy issue and the roller-coaster ride proves it's necessary for the regulator to solve the problem,' Haitong Securities analyst Zhang Qi said. 'Yet, we don't expect the regulator to take concrete action anytime soon.'

The B-share market, where shares are traded in US dollars on the Shanghai exchange and Hong Kong dollars in Shenzhen, was created in 1992 to help mainland state-owned firms raise foreign currency for expansion.

Unlike the yuan-denominated A shares, B shares initially could only be traded by foreign institutions and individuals but mainland residents have been able to buy them since 2001.

A lack of liquidity on the B-share market prompted the China Securities Regulatory Commission to consider merging it with the A-share market more than a decade ago but it never took that step.

In 2001, the regulator allowed mainland residents to buy B shares but the market remained in the doldrums as mainlanders preferred trading A shares.

Currently, mainland firms looking to raise foreign currency list in Hong Kong or other foreign markets instead.

In 2009, Beijing announced plans for an international board on the Shanghai Stock Exchange, where foreign companies could list yuan- denominated shares.

Talk of the launch further dented investor interest in the B-share market, which saw wide price swings this year after analysts called for an overhaul of the market.

With the yuan expected to strengthen further, analysts said more investors would dump the hard-currency B shares.

'The regulator will sooner or later have to address the problem,' said Cheng Weiqing, an analyst with Citic Securities.

'But it's still unknown whether the regulator has put the B-share issue on its agenda.'