Reform hopes spark surge in B shares

The foreign currency denominated B-share market surged yesterday as investors took a cue from remarks made by the chief researcher of the securities watchdog and bet that Beijing would roll out measures to reform the sluggish market.

The US dollar denominated Shanghai B-share Index climbed 19.01 points, or 5.72 per cent, to 351.416, its biggest single-day gain in two months. The Hong Kong dollar-denominated Shenzhen B-share Index jumped most since August 20, closing at 768.488, up 29.67 points, or 4.02 per cent.

Among the 104 B-shares companies traded yesterday on the Shanghai and Shenzhen stock exchanges, 103 stocks rose while only one stayed unchanged from a day earlier. None fell in value.

Qi Bin, head of the research department at the China Securities Regulatory Commission, apparently triggered the rally when he told a financial forum on Thursday that the watchdog 'is carefully studying the B-share market.'

Mr Qi's remarks sparked speculation that the slumbering B shares would be merged with the yuan-denominated A-share market, a move that is expected to benefit existing shareholders. B shares trade at a discount to their A-share counterparts.

'It was incredible,' said Haitong Securities analyst Zhang Qi. 'A single comment could have driven up the market that much.'

The mainland created the B-share market in 1992 to help companies tap overseas funds. However, the market has been sluggish as it lacks liquidity and solid companies.

The watchdog allowed residents to invest foreign currencies in B shares in 2001, only to see a boom turn to bust within four months as foreign investors took that as an opportunity to cash out.

'It was a festering issue,' said Wei Wei, a trader at West China Securities. 'You can't expect the regulators to work out this issue anytime soon.'

The market speculated that regulators long ignored B shares because they were focusing on spurring the development of the A-share market.

The A-share market rose for a third day yesterday. The Shanghai A-share Index climbed 0.70 per cent to 5,575.636 while its Shenzhen counterpart gained 1.58 per cent to 1,556.802.

The authorities are encouraging more heavyweight Hong Kong-list firms to float A shares, in an effort to enhance the overall quality of mainland stocks.

Deputy central bank governor Wu Xiaoling said on Thursday that monetary policies would not directly target asset prices such as stock value.

Ms Wu said her agency was envisioning healthy development of China's capital market.

Asian Development Bank economist Zhuang Jian said Ms Wu's remark was a message to the market that regulators would stay away from market-moving deliberations.

'The central bank has made it clear that it would not interfere deliberately,' Mr Zhuang said. 'My reading is, regulators wouldn't bother to drive up the market amid a crisis.'