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Are Chinese investors hostile to foreign listings?

Qatar’s sovereign wealth fund the latest to join the China queue

  • Suranjana Roy Bhattacharya, Special to Gulf News
  • Published: 12:06 June 28, 2012
  • Gulf News

Qatar’s sovereign wealth fund is the latest to join the China queue — with all the muscle at its disposal. The Middle East biggie is ready to invest up to $5 billion (Dh18.37 billion) in the yuan denominated A-share and IPO market, far in excess of the $1 billion allowed for single foreign investors in China. This faith reposed by global investors in China should ideally be cause for celebration, but strangely, the advent of foreign funds is getting cold and even hostile reception.

Under China’s qualified foreign institutional investor (QFII) programme, individual fund houses such as Bank of Korea, Kuwait Investment Authority and the Monetary Authority of Singapore are among the 172 entities who have got QFII licences to buy and sell yuan-denominated securities.

One would think, retail investors would lay out the red carpet for foreign companies planning to either list in Shanghai through the ‘international board’ or pump funds into the market, but local reaction has been unusually fierce. Micro-blogging sites are crying hoarse about foreign entities listing on the proposed ‘international board,’ some even calling it a disaster for the Chinese capital markets.

Many feel, financing small enterprises is more urgent than providing financing platform to foreign companies at this juncture.

Over the last two years, the China Securities Regulatory Commission (CSRC) has steadily streamlined approval regulations and eased policies to attract more foreign institutional investors to the mainland market.

It is also willing to allow participants under the QFII scheme to invest in China’s inter-bank bond market and start securities margin trading and short-selling business — neither is it averse to foreign long-term investment, such as pension funds and issuance funds.

Ground hostility

But official enthusiasm does not find echo at the ground level. Financial experts are wary of foreign companies listing in the domestic market as neither the market environment nor the A-shares operating system are ready to handle foreign entities. Chinese companies fear that if an ‘international board’ is set up, foreign firms may seem more attractive to domestic investors which will suck up all the funds.

Moreover, the market is still too weak to bear the impact of an international board. Not only is the Shanghai Index depressed, more worryingly the trading volume of A shares on the exchange has plummeted from about 420 trillion yuan (Dh244 trillion) in December to just about 115 trillion yuan in April. In such circumstances, an ‘international board’ can only be launched when the tide is in favour of a rising market. One view is that the market has to rise by 30 per cent before China can forge ahead with the international listings plan again.

In the past couple of years, any progress towards the formation of an international board put a strain on the market sending it hurtling down.

Currently there are at least 500 Chinese companies waiting in line for an IPO and there seems no reason why the government should give more opportunities to foreign companies.

Analysts are also trying to factor in the relative isolation of the Shanghai Stock Exchange.

The Shanghai Composite Index often moves independently of other major indices in the world and observers are trying to figure out if international listings will make the mainland markets more integrated with global stock movements.

Stunted status

As matters stand now, Shanghai can only be a large Chinese financial centre, rather than an international one.

Without global firms listing here and with companies unable to provide sophisticated financial services such as derivatives, futures and stock options, China is a long way from achieving a credible status.

Lack of convertibility of the yuan has proved to be the stumbling block time and again.

Companies such as McDonald’s or Coca-Cola, which are keen to list in Shanghai, may be able to raise billions of yuan on the exchange to fund their expansion within China, but they would be restricted from taking money out of the country. China does not take too kindly to the world’s biggest companies raising billions on their exchange and investing elsewhere. It may take some time for attitudes to change.

 

 

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