The Merger of China’s A and B Shares

September 18, 2006 at 8:06 am (China, Finance)

China’s B shares went unusually ballistic today. Then there is news that Shanghai Stock Exchange is maneuvering to merge B and A shares. The whole capital value of B shares are only about $10 billion, less than 10 percent of A shares’. A single medium-scale investor is able to buy the whole B market, which is denominated in USD and was designed particularly for foreign investers. For foreign investors, most times B shares are just reluctant alternatives and last resorts. They will first consider to invest on property markets. As new investment channels, such as QFII, become more and more available, it’s inevitable that B shares will be disfavored. A merger might be the only exit for the B market.

If we don’t forget that Chinese financial authorities have already kicked off an unprecedented conversion of $200 billion non-tradable equity into tradable A shares, we will be confident that China is painstakingly redoing the equity market in line with the international standard. The transformation created a new golden opportunity for those privileged to take advantage of.

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