Photo/Shetuwang

Aug. 20 (NBD) -- China on Sunday (August 18) issued a guideline on building Shenzhen into a pilot demonstration area of socialism with Chinese characteristics, which gave the A-share market a lift in two consecutive trading days, especially the Shenzhen stock market. 

Stock market boosted

NBD noticed that the southern city will be granted with favorable policies encompassing a wide range of reforms for Shenzhen's ChiNext board, the NASDAQ-style board of growth enterprises.

The guideline stipulates, "studying and improving the system for listing, refinancing, mergers and acquisitions and restructuring on the ChiNext board and creating conditions to push forward the reform of registration-based IPO system."

This boosted the domestic stock market. From financial information service provider Tonghuashun, National Business Daily (NBD) noticed that 20 Shenzhen-based company stocks soared a daily limit of 10 percent on Tuesday, while in the previous trading day, the metrics amounted to 55.

Moreover, stocks of Shenzhen-based companies as a whole rose by 1.75 percent, with aggregate market value increasing to 7.22 trillion yuan (1.02 trillion U.S. dollars) when the market closed on Tuesday, representing a sharp upturn of around 514 billion yuan (72.77 billion U.S. dollars) during these two trading days, according to statistics compiled by Tonghuashun.

The guideline also encouraged overseas investors, with a net inflow of 8.48 billion yuan pumped into China's stock market on Monday, hitting the new peak in recent two months. 4.62 billion yuan of the net inflow was traded through Shenzhen Stock Connect.

"The reform of registration-based IPO system plays the key role in the reform for capital markets," remarked Yu, "China's total stock market capitalization placed the third in the world while companies listed on the market saw huge swings and direct financing is insufficient from the market, thus signifying some problems existing in the system," said Yu Lingqu to NBD.

Yu is the deputy director of Department of Finance & Modern Industries at China Development Institute, a state-sponsored think tank in Shenzhen.

Registration-based IPO benefits asset-light tech firms more

"Shenzhen is expected to be a financial hub which can compete in the global financial market according to the guideline. The plans put forward in the guideline for the financial reform are intended to resolve problems faced in the current financial development, especially when the financial sector opening up is not strong or competitive enough despite its big sizes," remarked Yu. 

In the view of Yu, although the STAR market in Shanghai has already adopted registration-based IPOs, Shenzhen's capital market has a bigger advantage in implementing the same mechanism.

"The registration-based IPO system or the current approval-based IPO system displays no big difference for big companies to get listed on the main board, but will have more impact on technology-based enterprises running on asset-light model," said Yu to NBD.

NBD noticed that during these two trading days, Shenzhen-based company stocks with small market capitalization embraced greater increase under the momentum, compared to mid and large caps. 

Email: gaohan@nbd.com.cn