New Beijing exchange no threat to HK

President Xi Jinping’s announcement that Beijing would establish a stock exchange in the capital was greeted with concern in the SAR, with Hong Kong Exchanges and Clearing coming under pressure with a 2 percent fall in stock price.

Questions are being raised whether it will suffer due to a new competitor in Beijing.

Xi surprised investors with the announcement in a virtual speech at the China International Fair for Trade in Services on Thursday evening.

He said the new Beijing stock exchange would be the primary platform serving innovation-driven small and mid-sized firms.

According to Reuters, studies were already under way in March to upgrade an existing equity exchange commonly known as the New Third Board to support development of SMEs.

Officially known as the National Equities Exchange and Quotations, the New Third Board is basically an over-the-counter market.

Since it was launched in 2013, it has gone through some modifications aimed at offering SMEs a low-cost financing channel and simple listing procedures.

According to China Daily, turnover on the board for the first eight months this year reached around 100 billion yuan (HK$120 billion), while during the week from August 30 to September 3, shares worth 7.9 billion yuan shares changed hands.

As of Friday last week, 7,299 SMEs were listed on the various tiers of the New Third Board.

By the same token, following its launch the new Beijing stock exchange will also aim at the SMEs, including start-ups.

The New Third Board currently consists of three tiers, namely the base tier, the innovation tier and the top tier.

Which tier a board-registered company is seated into depends on its revenue, business volume and the amount of capital being raised.

According to the China Securities Regulatory Commission, the Beijing stock exchange will be created on the basis of the board’s top tier. The launch will see the migration of the top-tier companies to the exchange at the same time, after which the new exchange will form an organic relationship with the New Third Board so that companies registered on the base and innovation tiers may move up as they grow.

Of the 7,299 companies, only 66 are currently listed on the top tier.

A year ago, the capital threshold for investors to get a hand on these board-registered SMEs was lowered from 5 million yuan to 1 and 2 million yuan, subject to the tiers.

Usually, the capital raised via the board falls between 20 million yuan and 50 million yuan per company – too small a sum to be welcomed by a high-profile stock exchange like those in Shanghai and Shenzhen, let alone their Hong Kong peer.

As said, the cumulative turnover on the entire board so far this year was less than the daily average traded in Hong Kong.

It’s clear that the new Beijing exchange will aim at a market segment different from that of the Hong Kong bourse, where much bigger companies are targeted.

The fear prompting Friday’s fall in the Hong Kong Exchanges’ stock price was unfounded.

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