Chinese stocks briefly surge 30% as investors bet on Beijing exchange

Photo dated Aug. 19, 2021 shows a stock market trend, Shiyan, Hubei Province, China.

Cost photo | Barcroft Media | Getty Images

BEIJING – The shares of more than 60 little-traded mainland China stocks jumped at least 10% briefly on Monday as investors bet on the company’s potential listing on a new Beijing stock exchange.

Chinese President Xi Jinping announced late Thursday that the capital would open the country’s third stock exchange to help small and medium-sized businesses raise capital.

These and other privately held companies account for more than 80% of jobs across the country, but have a harder time than state-owned companies in obtaining funding from banks, the largest of which are state-owned.

The new Beijing Stock Exchange will initially draw from stocks that are already traded over the counter in the “Selection” section of the “New Third Board” or the National Equities Exchange and Quotations (NEEQ), the securities regulator announced on Friday.

That pool of 66 selected stocks all rose in Monday afternoon trading, with nearly a third temporarily climbing about 30%. Only five of the companies have a market capitalization of more than $ 1 billion. Daily trading volume per share was several million yuan on Monday, compared with hundreds of million yuan for the largest stocks traded on the mainland.

Sheet metal manufacturer Speedbird, manufacturer of specialized rubber products Tongyi Aerospace and packaging company Zhulaoliu were among the top 10 pioneers.

The launch date of the Beijing stock exchange has not yet been announced. The authorities are collecting public comments on the rules for the new trading venue until September 22nd.

Another exchange

Plans for the Beijing Stock Exchange mark the latest attempt by the Chinese authorities to improve the local stock market’s ability to serve as a funding channel for businesses.

The dominance of sentimental retail investors has contributed to much speculative activity in the mainland stock market. It’s the second largest in the world, but much younger than that of the United States at around three decades.

The mainland’s slow IPO approval system and high profit requirements have resulted in many of China’s largest corporations, particularly tech giants like Alibaba and Tencent, choosing to list in New York and Hong Kong instead. However, the stricter scrutiny of Chinese listings in the US by the governments of both countries has essentially halted the flow of Chinese IPOs to New York this summer.

In July 2019, China launched the Star Board in Shanghai to test a faster registry-based IPO and higher thresholds for investor access. However, analysts have said the equity board has lost momentum due to delays in its IPO last year.

But the authorities have extended some of the practices tested on the Star Board, such as larger daily stock trading margins, to other parts of the mainland market.

Analysts hope that the Beijing Stock Exchange will only contribute to these improvements in the market.

Cao Yanghui, director of Nanhua Futures Research Institute, a Hangzhou-based brokerage firm, said in a statement that the establishment of the Beijing Stock Exchange suggests that changes in the financial market are “moving relatively quickly”.

“If everyone used to think the registration system (IPO) was quite a long way off, now it may be close,” Cao said, according to a CNBC translation of his comments in Mandarin.

While the new exchange will initially draw from the selected group of companies on the New Third Board, a registration-based listing system will be implemented in public materials in the future.

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Stocks are allowed to rise or fall 30% on a daily basis, a relatively wide range for Chinese markets.

“We see the Beijing Exchange as positioned to support medium and small businesses and as the hub where the best of these companies can be listed on the Shanghai and Shenzhen stock exchanges,” said Morgan Stanley analyst Katherine Liu and one team Note in a notice published September 2.

They added that “short-term sentiment and liquidity should continue to drive brokers’ rally”.

The trading volume of the stocks has increased over the past two months. Monday was the 34th consecutive trading day with a volume of over 1 trillion yuan, according to Wind Information.

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