BEIJING, May 25, 2011 (Xinhua News Agency) -- Shanghai bourse's long-awaited international trading board, which will list overseas companies and allow them to sell yuan-denominated shares, is believed to be a step closer after several officials expressed their expectations for the establishment of a board in the near future.
As the market worries that the launch of an international board will dilute capital in China's A-share market, it has triggered a slump in China's stock markets. So will the launch of an international board hit China's stock markets hard? In what way will the board affect China's stock markets?
-- International board a step closer
Shang Fulin, chairman of the China Securities Regulatory Commission (CSRC), said at the Lu Jiazui Forum held in Shanghai on May 20 that the launch of China's international board was drawing increasingly closer.
Wang Jianjun, an official of the CSRC, said at a press conference held in Shanghai on May 19 that the conditions for launching an international board were about to mature. Fang Xinghai, director of the Shanghai Municipal Financial Services Office, earlier noted that rules and technical preparations for the international board had been largely completed.
These officials' remarks can be interpreted as meaning that after long-term preparation, conditions for launching the international board have been well established. The board now only awaits formal approval from the government.
--Influence likely to be limited in early stages
The launch of an international board will indeed bring market expansion and capital dilution pressure to China's A-share stock market.
But analysts pointed out that the influence of the international board in its early stage on China's A-share market will mainly be psychological, as the scale of financing of the international board will be limited.
If the pace of listing of overseas companies on the international board is properly controlled, it is believed it will not harm the healthy development of China's A-share market.
But the possibility exits that some A-shares with high P/E ratios will experience price slides after the launch of the international board.
At present, the markets generally expect that overseas registered firms, including transnational firms and also Chinese-funded firms registered and listed in Hong Kong, will be welcomed for listing on the international board.
Overseas companies such as HSBC (NYSE:HBC) , Standard Chartered, Bank of East Asia, Procter & Gamble (NYSE:PG) , Unilever (NYSE:UL) , and Royal Dutch Shell have all expressed an interest in listing on the new board.
Currently, the average P/E ratio in overseas mature stock markets is lower that that in China's domestic market. High-quality overseas large-scale companies on the international board, if continue to show low P/E ratios, will bring pressure to China's A-shares, which now are believed to be overvalued. The international board may drag down the valuation of China's stock markets as a whole.
-- Improvements for China's capital market
The launch of an international board would help the standardization of China's capital market and boost its maturity, said Yuan Dejun, a senior economist with China Galaxy Securities.
Overseas firms listed on the international board are expected to bring with them some of the international practice of mature stock markets to China, such as a fast and efficient dividend distribution system, where Chinese listed firms currently lag behind.
Meanwhile, the international board will provide an incentive for Chinese firms to gear themselves to international conventions in terms of enterprise, finance, and management systems. In sum, the opening of the board is expected to improve the fundamentals of China's capital market as a whole. (Edited by Sun Huanjie, sunhj@xinhua.org)