Shanghai to Regain Bourse Crown From Shenzhen: Chart of the Day

The Shenzhen Stock Exchange’s title as China’s dominant bourse may prove short-lived as policy changes boost its counterpart in Shanghai.

The CHART OF THE DAY shows average daily trading values in the southern city exceeded Shanghai’s last year for the first time since 1997, driven by a surge in demand for small-cap stocks that have tended to list in Shenzhen. Companies raised $38 billion more through initial public offerings on Shenzhen’s exchange since the start of 2010 than in Shanghai, where rules on the minimum size of offerings precluded smaller businesses.

Shenzhen’s ascent is now poised to reverse after regulators said in March that smaller companies can choose either stock exchange and Premier Li Keqiang unveiled a plan last month to allow overseas investors to trade mainland equities listed in Shanghai, according to Zheshang Securities Co. Boosting liquidity in Shanghai would help Chinese policy makers meet their goal of transforming the city into a global financial center by 2020.

“Shanghai’s exchange probably pushed for the rule change because most listings were going to Shenzhen in recent years,” said Wang Weijun, a strategist at Zheshang Securities in Shanghai. “More companies will likely choose to list in Shanghai after this.”

Previously, firms selling fewer than 50 million shares in an IPO were restricted to Shenzhen, while those offering more than 80 million were limited to Shanghai. Shenzhen, picked by Deng Xiaoping as a testing ground to open the nation to outside investment in the 1980s and where China’s first IPO took place in 1990, is so far excluded from the plan to permit foreign investors to trade mainland shares via Hong Kong’s exchange.

The Shenzhen Composite Index’s market value climbed to a record this year, while Shanghai’s benchmark gauge lost $1.5 trillion from its 2008 peak as demand for large state-owned enterprises soured. The value of shares on Shenzhen’s exchange is still 39 percent less than that of Shanghai.

— With assistance by Shidong Zhang

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