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Published on February 24, 2008

Author: Joshua

Source: authorstream.com

The Chinese stock market waking up – will it shake the world?:  The Chinese stock market waking up – will it shake the world? Waltraut Urban Stock market capitalization and GDP development in China (2000 = 100):  Stock market capitalization and GDP development in China (2000 = 100) Source: World Federation of Exchanges, China Statistical Yearbook, wiiw calculations Development of stock prices in Shanghai, Shenzhen, Hong Kong and New York (2000 = 100):  Development of stock prices in Shanghai, Shenzhen, Hong Kong and New York (2000 = 100) Source: World Federation of Exchanges, websites of individual stock exchanges, wiiw calculations Brief history of Chinese stock exchanges:  Brief history of Chinese stock exchanges Shanghai stock exchange 1891 Shanghai Sharebroker‘s Association 1904 renamed in Shanghai SE 1949 suspended 1990 re-established 2006: 842 companies listed, 917 bn $ market capitalisation Shenzhen stock exchange founded 1990 2006: 579 companies listed, 228 bn $ market capitalisation Restructuring a typical SOE into a shareholding firm:  Restructuring a typical SOE into a shareholding firm Local government as ultimate shareholder State asset management bureau Parent firm, an SOE or incorporated firm (Former SOE part I) Individual shareholders A-shares (Chinese citizens + QFIIs) B-shares (foreign individuals and investors) H-shares (mainland incorporated listed abroad) Shareholding firm with productive assets (Former SOE part II) Distribution of shares according to type :  Distribution of shares according to type Total number of companies listed :1381 (2005) 1240 had issued A-shares only 32 A&H shares 86 A&B shares 23 B-shares only 122 Chinese companies listed overseas (‚red chips‘) Main stumbling blocks to the development of the Chinese stock market until 2006:  Main stumbling blocks to the development of the Chinese stock market until 2006 Fragmentation of the stock market High proportion of non-tradable shares (>75%) Weak regulations Lack of minority shareholders‘ protection Stock market reform 2006:  Stock market reform 2006 Non-tradable shares made tradable Revised Securities Law and Corporate Law Lower threshold and extension of quotas for Qualified Financial Institiutional Investors (QFIIs) to enter the A-share market Other factors supporting the ‚bull run‘ starting in 2006:  Other factors supporting the ‚bull run‘ starting in 2006 High domestic liquidity and limited possibilities for Chinese individuals and institutions to invest abroad Government measures to restrict investment in the hot real estate market Shift from savings accounts to stock accounts (2006: 80 million individual investors in the Chinese stock market) High profits and profit expectations New listing of prominent companies, especially banks Appreciation of the Chinese currency SEEs top ten largest stocks:  SEEs top ten largest stocks Industrial and Commercial Bank of China (1,397.86 billion) China Life Insurance (904.78 billion) Bank of China (887.31 billion) Sinopec (692.22 billion) China Merchants Bank (201.09 billion) Shanghai International Port (164.56 billion) Baosteel (161.81 billion) Daqin Railway (114.71 billion) CITIC Securities (107.99 billion) Shanghai Pudong Development Bank (104.30 billion) Source: Shanghai Stock Exchange (market values in RMB/Chinese Yuan). Data arranged by market value. Updated on 15 January 2007 (1 USD = 7.7938) Emerging stock bubble?:  Emerging stock bubble? SEE composite index skyrocking end of 2006 Official warnings of stock market risks Banks ordered to guard against loan requests of potential stock market players Considerations to introduce a capital gains tax Shanghai composite index 2004-2007:  Shanghai composite index 2004-2007 Source: Hong Kong Exchanges and Clearing limited, information provided by Shanghai SE International linkages:  International linkages Weak direct links Strict capital controls (Yuan convertible on the current account only) Few Chinese financial investors allowed to invest abroad Small B-share market and limited access of foreign investors to A-shares Chinese stock markets still small compared to other stock markets around the globe Various indirect links Informal capital flows Chinese companies listing abroad and at home Increasing outward direct investment Emergence of China as a major supplier and consumer in the world economy Slide14:  * Euronext: Paris, Lisboa, Bruxelles, Amsterdam ** OMX: Stockholm, Helsinki, Kopenhagen, Tallinn, Riga, Vilnius, Reykjavik Domestic Stock Market Capitalization around the globe,USD bn, December 2006 Domestic Stock Market Capitalization ranked according to size,USD bn, December 2006:  Domestic Stock Market Capitalization ranked according to size,USD bn, December 2006 * Euronext: Paris, Lisboa, Bruxelles, Amsterdam ** OMX: Stockholm, Helsinki, Kopenhagen, Tallinn, Riga, Vilnius, Reykjavik Prospects:  Prospects Medium run: good economic fundamentals play a role Stock market capitalistion will expand faster than GDP First listings (IPOs) as well as Chinese companies listing abroad returning home (dual listing) Excess liquidity will continue to drive stock prices, but major corrections will occur from time to time. High volatility will remain, but may be mitigated by the introduction of (financial) futures, soon Linkages between the Chinese and other stock markets will grow Open questions:  Open questions Will a greater number of (domestic and foreign) institutional investors have a stabilising effect on the Chinese stock exchanges? Will a further opening-up of the Chinese capital market have a stabilising or a destabilising effect (in China and abroad) ? When will foreign companies list on the Chinese stock exchanges?

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