A LOT has been written about the pending flotations of nine mainland companies. The fear is that the B share markets in Shanghai and Shenzhen will be overshadowed.
The greater regulatory safeguards available in Hongkong, combined with the still massive demand for new share issues in the territory, is not to be denied.
Shanghai and Shenzhen's B share markets have been out of favour anyway and discounts to A shares have slid again to more than 70 per cent. While analysts are writing that B shares will be crowded out by the likes of Shanghai Petrochemical and Citic Pacific, it is worthwhile being contracyclical and examining Shanghai and Shenzhen's B share market prospects once again.
There are a number of positive factors that should give comfort and optimism to B share investors at recent prices.
The massive discount to the A share prices could easily be narrowed by permitting local investors to buy B shares and there is buying now in advance of this.
China's high urban inflation rate and lack of investment alternatives leads to asset allocation towards A shares. Demand could spread over to B shares, with the right permissions and marketing.
Shanghai's attempts to modify its custodian system to appease the SEC in Washington if successful, would lead to US institutional buying of B shares.