In China, the land of red-hot stocks, B-shares are white-hot

In China, the land of red-hot stocks, B-shares are white-hot
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First Published: Tue, May 22 2007. 12 02 AM IST

Boom market: Investors monitor stock movement at an exchange in Shanghai.
Boom market: Investors monitor stock movement at an exchange in Shanghai.
Updated: Tue, May 22 2007. 12 02 AM IST
Shanghai: These days, Zhang Nin gladly sacrifices her short lunch breaks so that she can queue up at the bank and buy US dollars for local currency.
The 24-year-old marketing executive at a Shanghai wine company needs the money to buy hard currency B-shares, which recently have emerged as an even hotter commodity than the sizzling local currency A-shares.
“I bought some B-shares on Tuesday and two days later they had risen by about 15%,” she said. “That’s amazing, as A-shares I bought three weeks ago only earned me about 20% of profit.
China’s stock markets have skyrocketed recently, boosted by massive inflows of individual investor money. But while the A-share market has boomed, retail investors have found that some B-shares issued by the same companies have risen even faster.
A-shares are denominated in the Chinese currency and were originally reserved for local investors, while previously only foreigners could buy B-shares, denominated in either US or Hong Kong dollars. The distinctions between the two have disappeared somewhat. Local people have been permitted to buy B-shares since early this decade, while foreigners are allowed into the A-share market via qualified foreign institutional investors.
Boom market: Investors monitor stock movement at an exchange in Shanghai.
Most of the 110 B-shares are also listed on the A-share market and they are generally cheaper, with an average discount of 20-30%, said Zhang Qi, an analyst with Haitong Securities.
“The price disparity of A-shares and B-shares has always been there,” Zhang said.
“But it was only in late April that retail investors suddenly woke up to find the value of B-shares was low from the past bearish years and started to speculate on them.”
The Shanghai B-share Index surged 80% in the month ending Thursday, compared with a 12% rise in the benchmark index in the same period.
Turnover just on this past Thursday was more than $7 billion, more than double that of Taiwan’s market.
This sharp rise made it seem worth the trouble for Zhang, the wine company executive, to reshuffle her portfolio. “I think B-shares are ‘safer’—they rise faster and cost less,” she said. “I am considering cutting some lukewarm A-share holdings and moving the funds to the B-share market.”
The B-share market was established in an attempt to channel foreign funds into listed firms, but foreigners have shown little interest.
“Foreign investors have better options like the Hong Kong market if they want to invest in Chinese firms, that’s why B-share market is now dominated by retail investors—they prefer inexpensive stocks,” said Gui Haoming with Shenyin Wanguo Securities.
The once marginalized B-share market, with a market capitalization merely two percent of the 2.3-trillion-dollar A-share market, is seeing sharper rises now, but it may also become a spearhead should a correction come.
“I think some B issues are obviously overvalued as their fundamentals have barely changed from years ago. We had better be cautious,” said Gui.
“The B-share market would be more vulnerable to large swings as most participants are individuals,” he said.
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First Published: Tue, May 22 2007. 12 02 AM IST
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