Shenzhen market still struggling to find role
Andrew Wood | Friday, 6 June 2008
FT Syndication Service
SHENZHEN: One country. Two systems. Three stock markets. Hong Kong and Shanghai dominate the market headlines about share trading in China but there is a third, much smaller, exchange in the country - Shenzhen.
In spite of pioneering share trading as long ago as 1987, when the Shenzhen special economic zone just across the border from Hong Kong was at the centre of communist China's experiment with capitalism, the Shenzhen stock market is still trying to find a clear role for itself.
Hong Kong is China's window on international investment - a world-class stock market with more than a century's history that has continued to thrive since the former British colony was handed back in 1997.
On the mainland, Shanghai is recapturing its pre-revolutionary buzz as a financial centre and is the market that Beijing has chosen for multi-billion dollar flotations.
Shenzhen, in comparison, seems sidelined. The average initial public offering (IPO) so far this year raised $53m, according to Thomson Reuters, compared with $544m in Hong Kong and $2.3bn in Shanghai. Shenzhen is tiny compared with its bigger rivals: the market capitalisation is about Rmb4,000m ($573m) compared with Rmb17,400m in Shanghai and $2,450m for Hong Kong.
One of the Shenzhen market's competitive advantages in the past was its proximity to the capitalist enclave of Hong Kong, a source of ideas, advice and investment.
But Hong Kong politicians are trying to build stronger links between the island and the neighbouring Pearl River Delta region. Jing Ulrich, chairman of China equities at JPMorgan Securities in Hong Kong, says: "There is a potential risk of Shenzhen becoming marginalised."
But she sees some encouraging signs. The Shenzhen and Shanghai markets have shown a very strong positive correlation over the past few years. But over the past six months, they have diverged, which brings diversification benefits for investors. "That's precisely why Shenzhen has a role to play," Ms Ulrich says.
Few of China's biggest companies have chosen to list in Shenzhen and its best bet, she says, is to focus on small and medium-sized companies in unglamorous sectors that are fuelling economic growth of more than 10 per cent a year in China.
Unlike Shanghai, where Thomson Reuters data say the value of IPOs so far this year is down 31 per cent, and Hong Kong, where it is down 59 per cent, the amount raised in Shenzhen is actually up 21 per cent on the same period in 2007.
Shenzhen is set to become home to a new growth and enterprise market for China in the next few months, although there would be competition from a similar market in Hong Kong.
Nevertheless, in the long run there may be room for only one market in China.
"In the past you have had more than one market in places like Australia and the United States," says Malcolm Wood, who leads Morgan Stanley's Asia-Pacific equity strategy team. "But the trend is for them to consolidate in one place. I guess we'll see the same in China."
SHENZHEN: One country. Two systems. Three stock markets. Hong Kong and Shanghai dominate the market headlines about share trading in China but there is a third, much smaller, exchange in the country - Shenzhen.
In spite of pioneering share trading as long ago as 1987, when the Shenzhen special economic zone just across the border from Hong Kong was at the centre of communist China's experiment with capitalism, the Shenzhen stock market is still trying to find a clear role for itself.
Hong Kong is China's window on international investment - a world-class stock market with more than a century's history that has continued to thrive since the former British colony was handed back in 1997.
On the mainland, Shanghai is recapturing its pre-revolutionary buzz as a financial centre and is the market that Beijing has chosen for multi-billion dollar flotations.
Shenzhen, in comparison, seems sidelined. The average initial public offering (IPO) so far this year raised $53m, according to Thomson Reuters, compared with $544m in Hong Kong and $2.3bn in Shanghai. Shenzhen is tiny compared with its bigger rivals: the market capitalisation is about Rmb4,000m ($573m) compared with Rmb17,400m in Shanghai and $2,450m for Hong Kong.
One of the Shenzhen market's competitive advantages in the past was its proximity to the capitalist enclave of Hong Kong, a source of ideas, advice and investment.
But Hong Kong politicians are trying to build stronger links between the island and the neighbouring Pearl River Delta region. Jing Ulrich, chairman of China equities at JPMorgan Securities in Hong Kong, says: "There is a potential risk of Shenzhen becoming marginalised."
But she sees some encouraging signs. The Shenzhen and Shanghai markets have shown a very strong positive correlation over the past few years. But over the past six months, they have diverged, which brings diversification benefits for investors. "That's precisely why Shenzhen has a role to play," Ms Ulrich says.
Few of China's biggest companies have chosen to list in Shenzhen and its best bet, she says, is to focus on small and medium-sized companies in unglamorous sectors that are fuelling economic growth of more than 10 per cent a year in China.
Unlike Shanghai, where Thomson Reuters data say the value of IPOs so far this year is down 31 per cent, and Hong Kong, where it is down 59 per cent, the amount raised in Shenzhen is actually up 21 per cent on the same period in 2007.
Shenzhen is set to become home to a new growth and enterprise market for China in the next few months, although there would be competition from a similar market in Hong Kong.
Nevertheless, in the long run there may be room for only one market in China.
"In the past you have had more than one market in places like Australia and the United States," says Malcolm Wood, who leads Morgan Stanley's Asia-Pacific equity strategy team. "But the trend is for them to consolidate in one place. I guess we'll see the same in China."