12 January 2022
Investors and businesses have welcomed the creation of a new Beijing stock exchange that will serve the financial needs of Chinese entrepreneurs. China’s close association with the Hong Kong stock exchange means this new trading platform could act as a feeder for successful start-ups. Due to the often volatile nature of start-ups and technology companies, the authorities have adjusted some historical restrictions.
The new Beijing stock exchange will be a stepping stone between the NEEQ small companies trading system and a full stock-market listing. It is also important to note that the new exchange has one shareholder, NEEQ, a privately ownedcompany working closely with the Chinese government.
Previously, the jump from the NEEQ board to a full stock market listing has often been a step too far for many companies. While the Shenzhen and Shanghai stockexchanges already have trading platforms for private enterprise/technology companies, the new exchange will be markedly different.
Since the launch of the new exchange back in November 2021, we have seen 71 companies transferring from the NEEQ trading platform and ten new companies making their public debut. There are several regulations and conditions with the new stock exchange, including:-
• Less restrictions on daily price fluctuations during first-day trading
Investors will welcome the less restrictive rules on price fluctuations with the Shanghai and Shenzhen exchanges limiting movement to 20% before a suspension. Due to the relatively small size of some of these technologies/start-up companies, there could be significant share price swings. Initially, the research available on these companies may be limited, exposing the market to unexpected news.
• No compulsory regulation for company cash dividend ratios
It was also interesting to note that the Chinese regulators issued participation requirements for investors looking to trade on the new Beijing stock exchange. Individual investors must:-
• Hold at least RMB 500,000 in assets in their securities and capital account for a minimum of 20 days before they can begin trading
Even though investment in relatively young technology/start-up companies by definition carries an enhanced degree of risk, these investor restrictions should reduce speculative trading.
At this moment in time, we await confirmation as to whether the Beijing stock exchange will join the Connect program. This program allows Chinese stock exchange listed shares to be listed in Hong Kong and traded by foreign investors. This is very useful with foreign investors' direct investment in Chinese stock exchanges restricted. Therefore, entry to the Connect program would not only increase liquidity on the new Beijing stock exchange but offer access to potentially substantial foreign investment in due course.
Here at Global Investment Strategy Hong Kong, we have a deep-seated knowledge of the Asia-Pacific region. Our international trading desk is open 24 hours a day, five days a week, offering access to global equities, fixed income, FX and derivatives. The introduction of this new technology/start-up based trading platform is, for many, the final connection from the NEEQ board to a full listing and introduction to the Connect system. Consequently, our low latency fast execution trading services will be even more critical as trading volumes increase.
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