Following the government's lifting of a one-year ban on share
sales, China's stock market closed at its highest level in nearly
two years yesterday. ?
The benchmark Shanghai composite index closed 3.95 percent
higher at 1,497.104 points which was its highest level since June
7, 2004 when it closed at 1,517.145 points. And the percentage
gains on the first day after the week-long May Day?holiday
were the biggest since June 8, 2005.
Shares in commodities, real estate and the electrical power
sectors saw a continuous increase on yesterday's market. Analysts
predict the index will rise to 1,500 points in the coming days.
"In the past, the rise of A-shares were driven by increases in H
shares," said Cheng Weiqing, an analyst with CITIC Securities. "But
now I don't believe the climbing of the A-share index is much
related to the rise of H-shares."?
The A-shares have been gaining in strength in a trend which has
been buoyed by the government's?market-friendly measures
introduced at the beginning of 2006.
The China Securities Regulatory Commission (CRSC) lifted the
one-year ban on share dealing by issuing new rules on Sunday. They
state that companies must meet 34 criteria to be eligible to sell
stock, which includes three successive years of profit and dividend
payments equal to at least 20 percent of income.
Compared to the old system, companies are now subject to tougher
restrictions when selling shares. And share sales should not be
bigger than 30 percent of a company's capital before the offering.
Companies selling convertible bonds should cap their total debt
after the sale at less than 40 percent of net assets as of the end
of the previous financial year.
The new rules also tighten supervision on the management of
raised capital and establish standards for private share sales
before they go public.
Currently more than 200 companies from more than 1,300 listed
firms are able to sell shares in the Shanghai and Shenzhen markets.
Around 30 companies have submitted applications to the CRSC to
float more shares.
The figures are encouraging for domestic securities firms as the
lifting of ban immediately revived their underwriting business.
The ban on share sales in the Shanghai and Shenzhen stock
exchanges has thrown securities firms into confusion since May
2005. Most of them have barely managed to scrape by over the past
12 months.
Some have been able to make an income by servicing listed
companies converting non-tradable state-owned shares. But these
profits are nothing compared to the income which can be generated
by underwriting.
"A securities firm can get commissions of between 1.5 and 3
percent by underwriting new share sales but the profit from
servicing listed companies to convert shares is only one-tenth of
the underwriting business," Dong Chen, an analyst with CITIC
Securities, told China Daily.
Up until April, 70 percent of listed companies had completed the
conversion of their non-tradable shares into tradable units. With
the lifting of the ban securities firms could shift their focus
from reforms to the flotation of new A shares.
CITIC's Cheng pointed out that as nonferrous metals including
copper, aluminum and gold would continue to climb, investors should
also pay attention to the possible rise of steel and construction
materials shares based on speculation that they'll recover from the
slump.
China kicked off its securities reform and suspended
simultaneously the launch of IPO and share sales on April 29, 2005.
In 2006 A shares staged a strong comeback. The benchmark Shanghai
composite index has increased 27 percent since the beginning of
2006.
(China Daily May 9, 2006)