New Chinese stock exchange to help small businesses to raise capital

Shares from more than 60 small-traded Chinese stocks have surged at least 10% on Monday. Chinese president Xi Jinping announced that the capital city would introduce its third stock exchange. It would help small and medium-sized businesses.

Other privately run businesses, including this, will contribute to more than 80% of jobs. The country businesses have gone through hard times in getting finances from banks.

This new Beijing exchange will draw from stocks that are already trading over the counter in the select section of “New Third Board.”. The pool of 66 select Chinese stocks rose on Monday afternoon. These are trading with a brief climb up to 30%. Only five of the companies have a market capitalization of more than $1 billion.

The daily trading volume for each stock was trading near millions of yuan compared to the hundreds of millions of yuan for the largest stocks that traded on the mainland.

Companies like Speedbird, Tongyi Aerospace, and Zhulaoluiu are among the top 10 advancers. The launch date of the exchange does not yet have an announcement. Authorities are gathering public comments on rules for its new trading venue.

Plans for the Beijing exchange mark the latest attempt of the Chinese authorities to improve the ability of local stock markets to serve as a financing channel. The dominance of the retail investors has contributed to the speculative activities in the stock market of the mainland. It is the second-largest one in the world. It is much younger than the US, which is about three decades old.

Chinese markets will allow the share to rise or fall by 30% per day in a relatively wide range.

“We see Beijing Exchange as positioned to support mid/small-sized firms and as a hub where the best of those firms can go-to list on Shanghai and Shenzhen exchanges,” Morgan Stanley equity analyst Katherine Liu and a team said in a Sept. 2 note.

They added that “near-term sentiment and liquidity should continue to drive the brokers’ rally.”

The stock trading volume has reached higher in the last two months. Monday marked its 34th straight trading day with a volume of more than 1 trillion yuan.

Credits: CNBC