China B Shares Rise for 15th Day, Longest Streak: Shanghai Mover

China’s B shares rallied for a 15th day, the longest stretch of gains in two decades, on speculation more companies will move their listings to Hong Kong in an effort to lure investors and boost their valuations.

The Shanghai B-Share Stock Price Index of foreign-currency traded shares gained 3.9 percent to 265.86 as of 1:31 p.m. local time, poised for the highest close since Aug. 17, 2011. The 15-day, 18-percent rally would be the longest since February 1992. The index is up 31 percent from a July low.

Livzon Pharmaceutical Group Inc. may convert its Shenzhen-listed B shares into Hong Kong-listed H shares, China Business News reported today, citing an unidentified person. This follows a Dec. 26 report from Credit Suisse Group AG that said China Vanke, the largest property developer, may be planning to move its B-share listing to Hong Kong. The company has suspended stock trading since Dec. 26 because of “important matters,” according to a statement to the Shenzhen Stock Exchange.

“With expectations that more B-shares are converting into H-shares, investors are buying these stocks, as they are cheap now and may gain in value in the future when they are converted,” said Xu Shengjun, an analyst at Jianghai Securities Co. in Shanghai.

The Shanghai B-shares index trades at 7.7 times estimated earnings, compared with 9.8 for the A-shares index and 8.9 for the Hang Seng China Enterprises Index of Hong Kong-listed Chinese stocks.

Vanke and Livzon would be joining China International Marine Containers Group Co., the first Chinese company to leave the B share market for the Hong Kong bourse where the daily trading volume is more than 3,000 times larger, according to data compiled by Bloomberg. Moving to Hong Kong would give these companies direct access to global investors as funding channels remain restricted on the Chinese mainland.

Valuation Discrepancy

“Because of the valuation discrepancy, B shares will either move over to H shares to get a revaluation, and the rest will eventually disappear,” Hao Hong, Hong Kong-based China strategist at Bank of Communications Co., wrote in an e-mailed response to questions. “Because of the thin volume, it’s difficult to buy B shares. Any small move has resulted in limit up situation, especially recently.”

Hong said there are “30-odd” B-share companies that are qualified to move their shares to Hong Kong. There are a combined 106 companies listed in the Shanghai and Shenzhen B-share indexes.

China’s B-share markets were set up in 1992 to give local companies a way to raise funds from foreign investors, who were banned from buying securities denominated in yuan. Foreigners and Chinese individuals are allowed to trade B shares.

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