Mysterious sell-off in forgotten B shares shows the extent of China’s unfinished capital market reforms and liberalisation

Shanghai’s B-share index fell to its lowest level in more than a decade, leaving investors baffled by what set off the decline

The appeal of China’s B shares to foreign traders has been waning amid Beijing’s efforts to further open up the bulk of its capital markets

Reading Time:4 minutes

An investor sits in front of displays showing stock information at a brokerage office in Beijing. Photo: Reuters

Published: 9:00am, 15 May 2020Updated: 5:50pm, 15 May 2020

A bout of mysterious sell-offs are reminding overseas traders of pitfalls in one corner of China’s US$7.5 trillion domestic stock market: local shares priced in foreign currencies.

The Shanghai B-share index, which tracks US dollar-denominated shares of 49 companies, tumbled by as much as 7.2 per cent on Tuesday to its lowest level since September 2009. In Shenzhen, shares denominated in Hong Kong dollars of 46 companies lost up to 3.7 per cent on the same day.

Baffled by the rout, some analysts have pointed to worsening liquidity and deteriorating corporate fundamentals among the possible causes. Others considered a flare-up in the US-China trade war. None, however, are convincing enough to explain the slump when the bigger market for A shares powers ahead at the same time.

The slump underscores the increasingly marginalised status of B shares, which were created in 1992 to woo foreign investors. Their creation came soon after the launch of A shares, or yuan-denominated shares listed on onshore exchanges. Their introduction was a prelude to wider market access for foreigners, as China integrated deeper with the global economy.

Today, the combined market value of B shares amounts to less than 0.2 per cent of the capitalisation of A shares issued by companies in Shanghai. Interest in B shares has also dwindled, with the average daily trading volume only about 0.1 per cent of their peers.

Select Voice

Choose your listening speed

Get through articles 2x faster

1.25x

250 WPM

Slow

Average

Fast

00:0000:00

1.25x