Stock markets: Shanghai has some way to go to realise ambitions

2010年12月02日 07:34 AM
 
Stock markets: Shanghai has some way to go to realise ambitions
By Patti Waldmeir Patti Waldmeir

Call it the sincerest form of rivalry: shortly after declaring Shanghai would challenge New York as a global financial centre by 2020, the city bought its own copy of the Charging Bull of Wall Street, and installed it on the Bund.

The “Bund Financial Bull” was created by the original sculptor and weighs the same as his New York sibling, but is a bit redder in colour.

But it will take more than a few thousand pounds of bull to make Shanghai’s dreams come true: China’s markets are among the largest in the world, but are also among the most immature, opaque and inaccessible to foreign investors.

It is hard to see Shanghai becoming a global financial markets superpower in less than a decade – though the past year has seen several steps towards that goal.

After years on the drawing-board and several false starts, regulators this April introduced stock index futures – agreements to buy or sell an index at a pre-set value on a future date – as well as launching a pilot programme to allow margin trading and short selling of equities. These reforms mark important milestones, since they provide tools that will help traders profit from falling as well as rising markets.

Shanghai is “moving in the right direction” and “putting the building blocks in place” to build a global financial centre, says Steve Lee of HSBC Jintrust in Shanghai, echoing the sentiments of many market analysts.

But Beijing has kept a tight grip on financial futures trading, requiring investors to pass an exam and deposit a significant chunk of funds against every trade, so that only wealthy investors and institutions can be involved.

And Beijing has also kept a tight rein on short selling and margin trading, only slowly increasing the trading volumes and number of companies allowed to engage in what it sees as very risky practices.

The authorities have also slowly begun to increase the international role of the renminbi but their near-term goal appears to be to make the currency “more convertible”, not to abandon capital controls altogether. Without a freely convertible renminbi, it is hard to see how Shanghai can ever live up to the ambitions embodied in the Bund Bull.

Despite these reforms – and more are expected within the next year, including the launch of an international board to trade overseas companies – Beijing is just “tampering at the edges” says Fraser Howie, author of Privatising China: Inside China’s Stock Markets. “These steps give the appearance of progress, but fundamentally, nothing has changed.”

Seven years after Beijing introduced its Qualified Foreign Institutional Investor (QFII) programme to give foreign money controlled access to the A share market – which lists companies incorporated on the mainland – foreign participation is capped at $30bn, less than 1 per cent of total market capitalisation of $3,500bn to $4,000bn.

And the most important reform of the past year does not apply to foreigners: non-mainland investors are barred from trading index futures, depriving them of access to the kind of tool they would expect from a global financial centre.

Some analysts think it will be decades before the Bund Bull fulfils his promise of making Shanghai a global leader, but it could become a regional force long before then. A report from Goldman Sachs that estimates the traded value of equities and futures in Shanghai alone could exceed $350bn a day by 2020, up from $47bn now, representing more than 75 per cent of Chinese liquidity and as much as 53 per cent of regional liquidity.

Chinese markets could provide 70 per cent of regional liquidity.

That may prove a more realistic ambition than beating New York at its own game: achieving true global status will mean lifting capital controls, modernising the courts, the legal system, and lifting controls on information in ways that Beijing may not yet be ready for – or at least, not within a decade.