Exchanges fighting to become the bourse of choice for yuan listings

SHANGHAI - The stock exchanges in Shanghai and Hong Kong look set for a collision course as they seek to attract yuan listings by foreign companies.

Neither of the bourses, who portray themselves as partners, faces an immediate threat of the business slowdown that has hit their counterparts in developed economies and forced them into a scramble of cross-border mergers.

However, success in courting overseas companies could be vital over the long term, especially since the huge amount of Chinese money that came the way of Hong Kong and Shanghai during the past few years is shrinking.

"At the Shanghai Stock Exchange (SSE) and Hong Kong Stock Exchange, there will be fewer and fewer major initial public offerings from Chinese companies," said Joy Lin, a Hong Kong-based analyst at Yuanta Financial Holdings Co.

"International expansion is an inevitable trend."

As part of China's plans to liberalize its capital market and make Shanghai - the country's financial hub - an international center, the SSE is planning to launch its so-called international board, which will allow foreign companies to list on the mainland for the first time.

Hong Kong Exchanges and Clearing Ltd, with a market value of $23 billion, the world's biggest among exchanges, said it was also mulling a platform to allow companies to sell yuan-denominated shares.

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The bourses have yet to unveil details of their plans, but Shanghai seems better placed to cash in, at least initially.

"Foreign companies can fetch higher valuations in Shanghai than in Hong Kong and so can raise more money at a lower cost," said Yu Wei, an analyst at Guoyuan Securities Co.

Shanghai-listed companies trade at 22.4 times historical earnings, compared with 16.9 for their Hong Kong-traded shares.

Moreover, the Shanghai market does not have the liquidity issue that Hong Kong currently faces. Unlike hard currencies, the yuan is not freely traded in overseas markets.

Hong Kong, because of its unique position as an offshore yuan center, does have some liquidity in the currency, but not enough to handle major IPOs.

Further, a mainland listing is more desirable for international companies because it would give them more exposure to the Chinese public.

Competition between the two exchanges is growing, mainly due a rapidly shrinking pipeline of IPOs from major Chinese State-owned enterprises, which has benefited both bourses.

Reuters