Lifted by anticipation of Bank of China's (BOC) imminent listing
on the domestic market as well as the securities regulator's
introduction of margin trading China’s stock market closed on a
26-month high yesterday.
The benchmark Shanghai Composite Index surged 1.5 percent to
close at 1,697.282 points reaching its highest level since
mid-April 2004. The Shanghai Index has gained more than 10 percent
in the past three weeks.
Bank shares were popular on Monday driven by expectation of
BOC's July 5 domestic listing. The bank will raise 20 billion yuan
(US$2.5 billion) in the country's largest-ever domestic initial
public offering (IPO).
"BOC's shares have been widely predicted to rise at least 15
percent on the first trading day," said She Minhua, a banking
analyst with CITIC China Securities. "The fact that BOC shares are
being sold benefits the valuation of other banking shares."
Shares in Huaxia Bank Co Ltd yesterday leapt 7.1 percent to
close at 4.83 yuan (60 US cents), while shares in the Shenzhen
Development Bank, still in the process of stock reform, climbed
7.14 per cent to 8.1 yuan (US$1.01).
Yesterday's market was also buoyed by the security regulator's
announcement that it would allow qualified brokerages to offer
margin trading--an advanced trading tool which lets investors buy
and sell with money and stocks borrowed from brokerages.
"Margin trading will begin on a trial basis from August 1," the
China Securities Regulatory Commission (CSRC) said in a statement
on Sunday.
"Even though the regulator is keeping this type of trading to a
small-scale on a trial basis the news did send a positive signal
about the government's determination to develop the stock market
and that buoyed investor confidence," said Cheng Weiqing, an
analyst with CITIC Securities. ?
"A batch of blue chip shares will rise steeply as they’ll be
selected for the margin trading market," Cheng said.
Cheng believes that China will not slow down its progress with
IPOs, particularly the larger offerings in the following months, as
the new trading tool would draw increased capital to the
market.
Brokerages with net capital of at least 1.2 billion yuan (US$150
million) over the past six months will be allowed to offer the
services and investors must provide deposits as collateral,
according to the CSRC statement.
Qualified securities firms must have been in the brokerage
business for at least three years and have effective risk
management, the statement said.
Leading domestic securities firms such as CITIC Securities and
Hong Yuan Securities will be the biggest winners as trading will
initially be confined to a small group of qualified brokerages.
"Those securities firms' revenue will certainly increase as
margin trading will bring them new gains from trading fees as well
as interest earnings," CITIC China Securities' She Minhua said.
Shares in CITIC Securities soared 8.59 percent to 17.20 yuan
(US$2.15) yesterday. Shares in Xinjiang-based Hong Yuan Securities
surged 4.92 percent to close at 9.38 yuan (US$1.17).
Analysts believe the regulator will release a series of detailed
trading rules in the following week.
"China has studied for four years the feasibility of margin
trading which is a mature trading system in developed countries,"
said Lu Lixin, a senior analyst with Beijing Securities.
"The introduction of the margin trading system, which acts as a
lever to pull more capital into the market, will stimulate and
deepen China's capital markets,” Lu said. “But on the other hand
it’ll also magnify investors' potential risks due to lever impact,"
added Lu.
(China Daily July 4, 2006)