NASDAQ, NYSE Rumble for China Listings
The NASDAQ vs. New York Stock Exchange rumble has really gone global in recent months. The Big Board recently scored a triumph and outflanked the rival U.S. electronic exchange by pulling off a $14 billion merger with the Paris-based exchange Euronext to achieve a sizable transatlantic footprint in trading and listings. NASDAQ (NDAQ), meanwhile, failed to extend its reach with a $5.3 billion hostile-bid-that-fizzled for the London Stock Exchange (see BW Online, 5/7/07, "What's Next, Mr. Greifeld?").
A key battleground in this war is China, home to a blisteringly fast economy and scores of companies eager to list abroad and tap the global capital markets. The two exchanges are stumbling over each other to find quality mainland companies to list.
NASDAQ has done a fairly good job of listing small-sized companies such as search portal Baidu.com (BIDU), online game operator Shanda Interactive (SNDA), and others with a combined market capitalization of more than $30 billion. In the first quarter of 2007 (a period of explosive initial-public-offering growth for NASDAQ in the U.S) the exchange managed to snag the initial offering of Chinese media company Xinhua Media Finance (XFML).
NASDAQ's Listings Envy
However that figure has been overshadowed by the action at the NYSE. NASDAQ hasn't managed for the most part to bag the big trophy companies such as China Mobile (CHL), China National Offshore Oil (CEO), and PetroChina (PTR)—these and others have opted for the New York Stock exchange. The Big Board has more than 40 such companies in its stable with total market capitalization well over $875 billion, including Simcere Pharmaceutical (SCR) that raised $226 million in an initial public offering on the U.S. exchange on Apr. 19.
Hoping to close the listings gap and troll the intense global investor interest for quality Chinese equities, NASDAQ has put together an ambitious new index of 30 mainland and Hong Kong-listed stocks. All are traded heavily on U.S. exchanges and have a combined market capitalization of $600 billion. To qualify, each stock has to have a minimum market capitalization of $200 million and an average trading volume of 100,000 shares. The NASDAQ China Index (CHXN) will start trading on May 7.
NASDAQ officials believe their new index is more comprehensive and consists of better companies than rivals such as the FTSE Xinhua 25 Index, the Halter USX China Index, and the Bank of New York ADR Index. "Our index contains Chinese companies that are listed and liquid—on any major U.S. market," says John Jacobs, an executive vice-president and chief marketing officer at NASDAQ.
Attracting Banks Is Key
One key measure of success will be the ability of the index to attract banks offering specialized Chinese exchange trade funds that are based on the NASDAQ benchmark. For instance, the iShares FTSE/Xinhua China 25 Index Fund (FXI) has net assets of nearly $4.7 billion. Jacobs is confident that the banks will come to NASDAQ, and says the early level of interest has been strong from the marketplace.
Jacobs thinks a successful launch of the NASDAQ China Index will raise the exchange's profile on the mainland and hence be a positive driver for future listings. Maybe, but it is telling that the lion's share of big market cap stocks on the new index are in fact already listed on the Big Board in the U.S. Still, NASDAQ is clearly gunning to expand its share at the New York Stock Exchange's expense in the critical Chinese market.