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Investors wary of mainland equities

Graham Earnshaw

SHANGHAI, Nov 6, Reuter – Foreign investors are be-coming more wary of Chinese equity markets due mainly to instability caused by greater local investor activity and the poor quality of many listed firms, analysts and brokers said yesterday.

Volumes on China’s B-share markets, launched in 1990 to provide a way for foreign investors to buy stakes in local Chinese firms without throw-ing open the local market to foreign buyers, have languished in recent months.

“The B-share market is basically dead at this point,’ a foreign broker in Shanghai said.

“People are interested in China but not so interested in Chinese equities,” a Japanese stock analyst, handling foreign investment in the Chinese equities markets, said.

The B-share markets are an attractive target for the billions of dollars worth of speculative “hot money” moving around China’s markets because the B shares are priced at a significant discount to the domestic A shares.

Brokers estimate about 40-60 per cent of B-share trading emanates from local Chinese investors, enough to add an extra degree of speculative instability to the market which is helping to drive foreign in vestors away, analysts say.

The purchase of B shares is technically illegal for domes tic investors, though in practice many do so through various loopholes.

“If [local speculation on B-shares] is allowed to continue it will kill the B-share market a foreign stock analyst said.

Yesterday, Shanghai’s B–share index closed at 53.763 points, only 4.963 points away from an historical low of 48.8 points. Shenzhen’s B index ended at 72.14, close to an all-time low of 63.75 points. With the B market in a slump, authorities have tried hard to curb market expansion. Only two companies have been listed on the Shanghai B-share market this year and both have been unsuccessful, with prices now well below the initial prices. Allan Ng, an investment analyst with SBC Warburg, said one of the basic problems is the quality of the companies chosen for listing on the B-share market.

“The solution is simple, but I don’t think the Chinese have the will to do it,” he said. “Put good, big companies out on to the market. The situation is such now that any self-respecting company is going to want to list in Hong Kong or New York, not in Shanghai.”

The China Securities Reg-ulatory Commission, China’s market watchdog, vets all applications for listings and has so far doled out most of its precious listing rights quotas to state-owned enterprises that are not generally attractive to foreign investors, analysts said.

“Until the product is more attractive the B-share market is not going to go anywhere,” Richard Graham, the chief China representative for Barings in China, said. REUTER

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