Shanghai to change overseas firm listing rules

By Zhao Yidi and Ellen Pinchuk, Bloomberg

SHANGHAI — The Shanghai Stock Exchange may change its listing rules to make it easier for overseas companies to sell shares, in a move to enhance the quality of publicly traded companies, said the bourse’s vice president.

The exchange “is in the process of changing” a listing rule that requires overseas companies to incorporate in China for at least three years before tapping the market for funds, said James Liu, executive vice president of the Shanghai Stock Exchange, in an interview at the World Economic Forum’s conference Friday in northeastern China’s Dalian city.

A shorter incorporation period makes it easier to sell stocks, helping start-ups and overseas companies raise cash from China’s 17 trillion yuan ($2.3 trillion) of savings and tap a stock market that’s more than doubled in value this year. The plan paves the way for Shanghai to introduce a board similar to the Nasdaq exchange for start-up companies to raise cash.

The stocks on China’s benchmark CSI 300 Index are the most expensive among the world’s primary indexes, according to Bloomberg data. Yuan-denominated stocks on the Shanghai A-share index trade at almost 48 times 2006 earnings while Shenzhen’s A shares are priced at 70 times last year’s earnings.

Still, the Shanghai index, which Thursday rose 1.6% to a record, “is not too high,” Liu said.

“If you look at the prices today versus 2007 earnings, the multiples are low,” he said. “The average price-earnings ratio is in fact coming down” as companies become more profitable, he said. China’s securities regulator Shang Fulin said the government is poised to let investors buy and sell futures contracts based on the stock index, in a move to broaden investment options for the country’s equity investors, with more than 100 million brokerage accounts.

The government has almost completed the preparations, Shang said Thursday in Dalian. Infrastructure including regulations and rules are ready, while futures brokers have already started investing in technology, he said.

“It’s pretty much in place at this stage. We just need a time to launch this product,” the Shanghai Stock Exchange’s Liu said Friday. “We are confident that this could be a success.”

The market capitalization of China’s two stock exchanges soared to $3.19 trillion this year, surpassing Hong Kong as Asia’s second-largest equity market. The number of shares traded everyday in Shanghai jumped to a record 29 billion on May 9, with almost 16 billion changing hands Thursday, according to the exchange’s data on Bloomberg.

“The current trading volume is only 35 percent of the capacity of the Shanghai exchange’s computer and trading system,” Liu said. Still, the exchange will upgrade its system in the next three months to prepare “for new investors coming into the market. With that, we’ll be confident for the market to double, triple.”