B shares jump on fresh rumours of markets merger
Foreign currency-denominated Bshares yesterday jumped in Shanghai and Shenzhen on renewed speculation that the markets soon would be merged with their larger yuan-denominated A-share counterparts.
The Shanghai B-Share Index surged 7.19 per cent to close at 152.676 points while the Shenzhen B-Share Index rose 3.91 per cent to 479.737 points.
Both indices fell back from even higher gains earlier in the day after the China Securities Regulatory Commission denied rumours that it was planning to merge the two markets.
'This information has not come from official channels and is misleading to investors,' a CSRC spokesman said yesterday.
The small and illiquid B-share market was set up soon after the inception of the exchanges in the early 1990s to attract foreign capital to mainland firms. B shares can be traded only by foreign and individual domestic investors using US dollars in Shanghai and Hong Kong dollars in Shenzhen.
With the growth of offshore-listed H shares as an avenue for raising international funds, the B-share market has largely been sidelined with no new listings for more than four years.
'The mission of the B-share market has been completed already,' HSBC analyst Steven Sun said. 'The government is likely to begin the reform to merge it with the A-share market within the next three to six months, although the details still have to be worked out.'
Before yesterday's dramatic rise, the 109 companies listed on the B-share market were trading at an average 42 per cent discount to their A-share counterparts, calculated on a capitalisation-weighted basis by comparing the 86 firms that have both A and B-share listings.
By the end of trade yesterday, the discount had been reduced to a still-hefty 35 per cent with traders forecasting continued buying interest in the coming days.
As well as being able to buy mainland companies in Hong Kong, foreign investors also now have access to the A-share market through the qualified foreign institutional investor (QFII) scheme and through strategic investments in individual companies' shares.
US investment bank Goldman Sachs used the strategic investor method to acquire stakes in three listed companies in the final quarter of last year.
One perceived hindrance to the merger is how B shares can be converted into A shares for foreign investors that do not hold QFII licences and are thus barred from owning yuan-denominated stocks.
However, the fact that the majority of B shares are now held by domestic retail investors who bought heavily when they were first allowed into the market in 2001 would make this a smaller problem than perceived.
