China’s plan to launch a new exchange in Beijing boosted shares in Chinese brokerages but knocked down Shenzhen start-up board ChiNext and shares of Hong Kong’s bourse amid expectations of rising competition.
The plan was announced by President Xi Jinping on Thursday as part of a drive to boost innovation and better funnel financing to small- and medium-sized enterprises (SMEs). Xi said the new bourse will be the primary platform serving innovation-oriented SMEs, raising questions especially over how the ChiNext board will fare in future.
“The Beijing stock exchange has equal footing with Shanghai and Shenzhen bourses,” said Rock Jin, economist and CEO of investment adviser PopEton. ”If it prospers, the three will share the market in tripartite confrontation.”
Xi unveiled plans for the new exchange in a video address at the opening of the China International Fair for Trade in Services late on Thursday. The new bourse is part of a reform of Beijing’s New Third Board, the National Equities Exchange and Quotations. Jin though said it was a big question mark whether the new exchange could thrive in Beijing, a city that ”doesn’t have the right culture for an exchange.”
HKEx and ChiNext shares down
Neither Xi nor the China Securities Regulatory Commission (CSRC) said if the Beijing stock exchange would attract overseas-listed firms. If that is the case, “it would increase the competition” in listings for Hong Kong Exchanges and Clearing Ltd (HKEx), Jefferies said in a note.
HKEx shares dropped more than 2% on Friday and Shenzhen’s ChiNext was down 1.6%, both underperforming the broader market.
But shares of brokerages, including Northeast Securities Co, Dongxing Securities Co and Shenwan Hongyuan Group Co jumped, with investors betting they will benefit from more initial public offerings (IPOs).
“This is a step forward in capital market reforms, as it enhances the multi-layered capital market system and direct financing,” Morgan Stanley said in a note.
The bank added that the implementation of a registration-based IPO mechanism on the Beijing exchange paves the way for the rollout of the listing system on China’s main boards. Currently, only Shenzhen’s ChiNext, and Shanghai’s tech-focused STAR Market adopt the US-style IPO system.
China is launching the new exchange as part of efforts to channel more household savings into the stock market to fund innovation and economic recovery, while reducing the economy’s reliance on bank lending. It also comes as US-listed Chinese companies face the risk of delisting amid Sino-US tensions.
CSRC said that the new exchange will be based on the current “select tier” of Beijing’s New Third Board. That means all the 66 companies listed in that tier will be transferred to the Beijing exchange, according to Jefferies.
The New Third Board, which was set up in 2013, currently houses a total of 7,299 SMEs, mostly in the “base tier” and “innovation tier.”
The board once attracted more than 10,000 companies listed in 2013-16, but the market has suffered from poor liquidity since China’s spectacular 2015 market boom and bust.
• Reuters and Jim Pollard
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