China’s market cap to quadruple: report
Credit Suisse projects capitalization will hit US$1.9 trillion by 2010
Thursday, September 21, 2006
By James Langton
investmentexecutive.com
China will see its total market capitalization quadruple by 2010, according to Credit Suisse. It will reach US$1.9 trillion, or 50% of the country's GDP, compared with US$402 billion at the end of 2005, the firm says.
Annual market turnover is expected to rise more than three times to US$1.3 trillion by 2010. The firm also expects US$93 billion in new funds to be raised in the A-share market over the next four years, driven by an expected surge in dual listings.
Currently only Chinese nationals and qualified foreign institutional investors are allowed to trade A-shares, which are denominated in Renminbi and traded on domestic exchanges only. Vincent Chan, Credit Suisse's head of China research, said there is a good chance that major overseas listed Chinese companies would seek a dual listing in the domestic market within the next five years, driven by a strong social-political need to allow domestic investors to share in the country’s successful companies.
“Currently, of the 53 major Chinese companies that have a market cap of over US$3 billion, 29 are listed only in overseas markets,” said Chan. “If they were all to seek a dual listing in the A-share market, based on current valuations, China’s total market cap would increase by US$731 million already, which is bigger than the current aggregate market cap of the Shanghai and Shenzhen stock exchanges.”
He also cited China’s rapidly growing economy, domestic liquidity and need to reduce reliance on bank loans as reasons for his optimism.
China’s domestic market capitalization was only 18% of the country’s GDP by the end of 2005, which is well below the international average of 85%, and even lower than that of most emerging markets.
Despite the sharp growth in capital markets and the influx of new funds, Credit Suisse said there needs to be a major consolidation of domestic securities companies and accounting firms. From the regulatory viewpoint, the development of stock market derivatives, the further opening of the market to foreign investors, the development of local institutional investors and the ability to short-sell stocks would be crucial, it noted.
One implication of the expansion of China’s capital markets is that the relative importance of Hong Kong as China’s major financial centre will decline from its exceptional level of the past few years.
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