Chinese B Shares Hit Upper Limit By Lunchtime

Mary Swire, Tax-News.com, Hong Kong

01 March 2001

Yesterday was the first day on which Chinese B shares could legally be traded by residents using their foreign exchange balances after the authorities opened the market last week, and a rush of buying meant that most shares had reached their permitted 10% increase limit by lunchtime. Trading in a number of shares closed for the day after just one bargain had been struck at the full 10% increase in price.

The shares are traded on two exchanges, Shanghai and Shenzen, and in both places the B-share index had risen by just under 10% by mid-day, showing that trading was concentrated in stocks with higher valuations.

Previously, mainland investors were supposedly limited to A shares, a Chinese currency version of many of the same stocks, which have historically traded at many times the value of B shares. Many investors in fact found ways of using the $110bn in their external accounts to buy B shares, but yesterday's buying rush shows that there is plenty of unfulfilled demand.

Since it is the announced intention of the Chinese authorities to work towards a unified share market, and the disparities between A and B share valuations are so great, it is likely that the most popular titles will hit their daily limits for many days to come.

Investors opened some 340,000 new B-share accounts on Monday and Tuesday, more than doubling the previous total of 280,000, state media reported. Trading had been suspended while new systems were being installed.

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