Shanghai free-trade zone

Free-trade zone renews hopes for foreign board

But a launch in the short term is unlikely amid weak sentiment, say fund managers and analysts

PUBLISHED : Friday, 11 October, 2013, 12:00am
UPDATED : Friday, 11 October, 2013, 3:55am

The opening of a free-trade zone in Shanghai last month has rekindled hopes for a long-heralded international board in the city, with financial liberalisation expected in the zone likely to offer foreign-funded firms a fast track to listing on the A-share market.

However, fund managers and analysts said weak market sentiment meant the launch of such a board was not imminent.

The Shanghai Stock Exchange is allowed to open a branch in the free-trade zone, the first of its kind on the mainland, according to sources with knowledge of the issue. The zone became operational on September 29.

Details of how the branch will function have yet to be worked out but it is widely believed that one target will be the on-again, off-again international board that Shanghai initially planned to create in 2009.

Every time talk [about the board] surfaces, the market reacts in a hostile manner

The zone, where experiments in financial liberalisation will be conducted, is regarded as an ideal location for an international board, where foreign companies could float yuan-denominated initial public offerings and see their shares traded.

Mainland media said yesterday that the establishment of the stock exchange branch in the zone indicated the regulators had put the international board back on their agenda.

Such reports knocked the key indicators down yesterday amid worries about an equity influx that could dilute existing holdings.

The Shanghai Composite Index ended the day lower after rising for four consecutive sessions, losing 20.84 points, or 0.9 per cent, to 2,190.93.

"Talk about the international board was to blame for the drop," said Dong Jun, a Shanghai-based hedge fund manager. "Every time such talk surfaces, the market reacts in a hostile manner."

The establishment of an international board was part of Shanghai's plan to transform itself into a global financial centre by 2020.

The China Securities Regulatory Commission (CSRC) gave in principle the Shanghai exchange approval to launch the board in mid-2011, but it later made an about-face, putting it on hold in the wake of lacklustre market sentiment.

At that time, the regulator asked major state-owned media to help smooth the way for the launch of the board and not to publish negative stories about it.

Last year, then CSRC chairman Guo Shuqing said it was not necessary to create an international board, in an apparent effort to bolster investor confidence.

The commission has suspended initial public offerings on the Shanghai and Shenzhen stock exchanges since October last year to stem equity supply to the bearish market, and it has yet to announce a timetable for the resumption of new share offerings.