China's long-overdue announcement of a pilot programme to gradually float non-tradable shares will bolster investor confidence in its stock markets over the long run, analysts said yesterday.
However, some predicted short-term volatility from an increase in the share supply and lingering uncertainty over key elements of the reform, such as lifting the ban on newly listed companies putting all their shares on free float after an initial lock-up.
Non-tradable state-owned and legal-person shares held by the government and state-backed entities and transferable only through privately negotiated deals accounted for 68 per cent of the country's stock market capitalisation of 3.48 trillion yuan at the end of March.
Owners of these non-tradable shares often hold huge sway over listed firms and have long been blamed by minority shareholders for widespread corporate abuses.
Since Beijing's ill-fated efforts to force the sale of state shares in 2001 to finance the under-funded pension system, worries that the government would flood the market with non-tradable shares have depressed share prices.
Despite the country's galloping economy and surging property prices, its share indices are among the world's worst performers this year. Last Wednesday, the benchmark Shanghai A-Share Index was at a near six-year low.
'[The state-share issue] has been an overhang that has even deterred qualified foreign institutional investors [QFIIs] from the market,' Deutsche Bank economist Ma Jun said.
