Top Biz News
Rally in B shares wins new attention
By Zhang Ran (China Daily)
Updated: 2009-11-23 08:01
Qiao Binhua, aged 30, worked as a tourist guide in Shanghai for nine years. Because of his job, Qiao would occasionally earn tips paid in US dollars by his foreign clients.
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 Dominique Strauss-Kahn, managing director of the International Monetary Fund (IMF), who is calling for a stronger yuan, speaks at the International Finance Forum at the Diaoyutai State Guesthouse in Beijing last week. [Bloomberg News] |
In 2000, at his friends' suggestion, Qiao invested $25,000 in a kind of securities that he barely understood, the so-called B share, a stock traded on the Shanghai and Shenzhen stock exchanges, priced in US or Hong Kong dollars.
In eight years, Qiao earned a 600 percent return on his investment, much higher than the 300 percent return from yuan he invested in A shares, which is a main stock priced in renminbi and traded in Shanghai and Shenzhen.
The B-share market has enjoyed several robust rallies in its relatively brief history.
The first time was from March 1999 to May 2001, when the main index increased as many as10 times in 27 months.
The second time was between January 2006 and October 2007, when B shares climbed as much as five times their value during the period.
The third time, beginning last year, B shares almost doubled in the last 12 months, including a newer round of market rallies since the end of 2008.
This round of growth finally evolved into a blowout two weeks ago. Since November 13, all B shares had gained 15 percent percent by Nov 19.
Anticipation
The sharp rally in B shares in the last two weeks came after the People's Bank of China made a rare change of wording on its exchange rate policy, saying it will consider upward pressures on the yuan from surging capital inflows and a weakening US dollar.
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The topic of renminbi appreciation gained greater prominence in recent days, based on expectations that Obama might raise the issue during his China visit last week.
In meeting with Chinese government officials, Obama did press complaints that China's yuan is set too low, hurting US business and exports.
Dominique Strauss-Kahn, managing director of the International Monetary Fund, also called for a stronger yuan when speaking at the International Finance Forum at the Diaoyutai State Guesthouse in Beijing last week.
The yuan climbed 21 percent in value over three years after the Chinese government scrapped a fixed exchange rate in July 2005.
"An appreciation in the yuan would make the foreign currency-denominated B shares cheaper for Chinese investors," analyst Zhang Qi from Haitong Securities said.
Valuations
Zhang said the average price of a company's B shares accounts for merely half or one-third the price of the same company's A shares due to a long time illiquidity of the market.
"Attractive valuations of some companies with good fundamentals may trigger share-price increases," he added.
B shares, as foreign currency-denominated shares, were first listed in 1992 as a way for companies to raise funds from foreign currencies.
