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Nation Renews Hope of Market Liquidity
China's plan to float non-tradable stakes held by institutions in B-share firms renewed hopes of increasing market liquidity, an essential part of the hard currency market reform.
The China Securities Regulatory Commission said on Wednesday that foreign partners of a Chinese-foreign joint venture would be allowed to float the shares they acquired before the firm listed B shares.
"Founding foreign investors can float their stakes in B-share firms three years after the company is set up," said the announcement.
Non-founding foreign investors can also float their shares as soon as they get approval from the regulatory commission.
Previously, foreign institutional investors who bought stakes in a company before it was listed on the B-share market were not allowed to sell their shares on the hard currency market.
"That is a positive sign for further liberalizing the B-share market," said Dong Chen, an analyst with China Securities Company.
"If more shares could be floated in the hard currency market, trading would be more active and that would make the market more attractive to investors," he said.
Foreign partners are estimated to hold around 1.8 billion non-tradable institutional shares in about 20 of a total of 114 B-share firms listed in Shanghai and Shenzhen by the end of June.
The floating plan is similar to the liquidizing of the mammoth State-held shares in domestic A-share companies, Dong said.
"That would provide some valuable experience for the State-owned companies to cash in on the State shares," he said.
However, the impact of the policy would remain limited in the near-term as most of the foreign stake holders in Chinese-foreign joint ventures are long-term strategic investors, analysts said.
"Some of them might not be willing to sell the stakes right now," according to an analyst with the Shanghai-based Haitong Securities.
A comparatively low P/E (price/earnings) rate of the B-share companies also dampens potential of returns if the stocks are sold.
Investors are waiting for the government to take concrete measures to further ignite the B-share market, which is specially saved for foreign investors but has far fallen behind the A-share market in scale and trading activity.
Still, investment potential in B shares is huge as long as companies can continue to improve performance instead of simply relying on policy boost, said Dong.
Source: China Daily
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