New tool could be answer for A-shares
By Zhang Ran (China Daily)Updated: 2007-01-19 10:13 The China depository receipt (CDR) has been on the cards for years, but it is now more likely the investment tool will be introduced this year.
Demand for Chinese A-shares continues to push the stock market to new highs. A massive inflow of new funds to the market has added to supply pressure and pushed regulators to speed up their approval of new share issues.
Meanwhile, with the revival of the Chinese stock market from a four-year slump after the share reform, an increasing number of overseas-listed companies are eager to list in Shanghai.
Analysts believe it is high time the CDR was introduced, to add a new investment product and to further open the Chinese capital market.
The CDR is a certificate issued by a Chinese bank that represents a pool of foreign stocks traded on local Chinese exchanges. Foreign companies can use the investment tool to allow both Chinese institutional and private investors to buy their stocks.
The CDR is derived from the American depository receipt, a product that trades in the United States but represents a specific number of shares in a foreign corporation.
Red chips to return
Though still a new concept for domestic investors, the CDR is likely to gain momentum this year with the return of red chips stocks of companies incorporated and listed in Hong Kong with their core business on the mainland.
Red chips such as CNOOC Limited, China Insurance International Holdings and COFCO International Co Ltd, have all expressed a desire to list in Shanghai.
"China Mobile is likely to become the first overseas incorporated company to list in Shanghai through the CDR," said Wang Guoping, an analyst with China Galaxy Securities.
As China currently does not allow overseas-incorporated companies to directly issue A-shares, the CDR would provide a channel for red chips to return to the stock market.
Though China Mobile has not yet disclosed its listing plan, analysts said the firm would return to the A-share market this year.
"Despite rumors that China Mobile might directly issue A-shares, I believe it
would be more feasible for them to issue CDRs," Wang said.
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