26 Feb 2018
For equity investors clamouring for more access to the Chinese market, 2018 opened with some good news. The China Securities Regulatory Commission (CSRC) has confirmed a pilot scheme under which three mainland companies will be allowed to release some of their non-tradeable H shares into circulation on the Hong Kong Stock Exchange.1
While the announcement was made with little fanfare, it could have some major implications for the Chinese equity market. If the scheme is successful it could be rolled out to other mainland firms listed in Hong Kong, many of which currently have a significant portion of their share capital locked up due to strict regulation. According to UBS research, 154 Chinese companies are sitting on non-tradeable H shares worth a collective HK$2.6 trillion ($332 billion).
Time will tell whether the CSRC will sanction the free release of all of these H shares given the regulator’s traditional reluctance to relax control of cross-border capital flows. Nevertheless, the scheme looks promising. Freeing up mainland companies’ share capital should boost liquidity and bring about a greater alignment between controlling parties and public investors, among other benefits. But any expansion of the Chinese equity market could also affect the performance of shares that are already listed.
1. ‘CSRC gives nod to pilot programme for full H-share convertibility’, GlobalCapitalAsia, January 2018
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