China ready to launch Nasdaq-style index

China will launch trading on its long-awaited Nasdaq-style board on
Friday in the hope of harnessing the vast amount of liquidity
circulating in the economy for cash-strapped businesses, experts say.
ChiNext, based in the southern boomtown of Shenzhen, is expected to
give small and medium-sized companies (SMEs) access to financing and
encourage private equity firms and venture capitalists to back
start-ups, they said. "The launch of the growth enterprise board is
an important step towards implementing the national strategy on
promoting innovation," Shang Fulin, chairman of the China Securities
Regulatory Commission, said last week. The first 28 companies to list
on the board, ranging from software to medical equipment makers,
have raised 16 billion yuan (2.3 billion dollars) in their initial
public offerings -- more than double initial forecasts. "The launch
of ChiNext represents a milestone in the development of China's
financial markets and is an important part of the government's plans
to boost support for small and medium- sized firms," said Jing Ulrich,
managing director and chairman of China equities and commodities at
JP Morgan in Hong Kong. "The board will provide an additional source
of financing for younger companies while broadening the options
available to investors." Beijing has made listing rules for the second
board less stringent than for the main A and B share markets, paving
the way for SMEs to access much-needed cash. SMEs, the biggest
employers in China, struggle to obtain loans from commercial banks,
which prefer to lend money to large state-owned enterprises. ChiNext
was expected to initially weigh on A and B shares as investors
diverted funds to the new index, but analysts predicted the
phenomenon would be short-lived. "There will be a psychological impact
but it won' t be substantial," Ren Xianfang, a Beijing-based
economist at IHS Global Insight, told AFP. "Liquidity in China is
ample. We have so much liquidity looking for new investment
opportunities." The Chinese economy is awash with money after Beijing
unveiled a four-trillion-yuan stimulus package and loosened its grip
on bank lending to help ward off the effects of the global downturn.
Jackson Wong, vice president at Tanrich Securities, said the new
board would encourage private equity and venture capital firms to
fund start-ups as they "will have more ways to cash out" investments
once the company has listed. But there are fears the new board will
attract speculative traders, especially on the first day, and the
bourse has introduced rules to curb their activity by setting a limit
on share price movements for Friday. If the prices of start-up stocks
move up or down 80 percent during the first trading day, the bourse
will suspend trading until the final three minutes before the session
ends, the Shenzhen Stock Exchange has said. Two other debut-day
circuit-breakers are in place -- trading will be suspended for 30
minutes if shares in a company move up or down 20 percent from the
opening price, and then another 30 minutes for a 50- percent shift.
ChiNext has said the restrictions will help curb risks, maintain
market stability and protect investors. "The size of share offering
in the growth enterprise market is often not large; therefore, if
investors blindly follow the trend, buying and selling stocks, prices
are very vulnerable to wide swings," the exchange said. Despite the
hype, the second board was expected to have a limited impact on the
Nasdaq, analysts said, with companies looking for exposure to global
investors still likely to seek a US listing. "The growth enterprise
market is just starting and is subject to manipulation so the risks
are much higher than on the Nasdaq," IHS Global Insight's Ren said.
"For high-quality companies wanting to establish a global presence, I
think they will still look at the Nasdaq because they will have more
access to global capital."