Foreign investors set to expand A-share play

"We would like to introduce more institutional investors and overseas investors into the Chinese market, as JP Morgan has multiple channels and a rich client base," Huang said. "It is our hope that this group of investors can participate in trading on the BSE via the QFII mechanism or other channels approved by regulators."

JP Morgan announced in early August that the China Securities Regulatory Commission has approved the registration of JP Morgan International Finance Ltd with 100 percent ownership of JP Morgan Securities (China) Co Ltd, making it the first foreign firm to fully own a securities venture in China.

No industry leader is left behind in the race to make their BSE presence felt. Shortly after the decision to set up the BSE was announced, Morgan Stanley responded instantly and came up with a research report on Sept 2, informing investors of the basics of the new bourse and its understanding of the BSE's positioning.

Integral to the construction of a multilevel capital market in China, the BSE will help stress direct financing. Some quality companies trading on the BSE are likely to migrate to the Shanghai and Shenzhen bourses in the future, according to Morgan Stanley.

Credit Suisse Securities (China) Ltd has been expanding its services in China by reaching out to more clients in the country. Credit Suisse Securities' expansion strategy is in line with the positioning of the BSE, which aims to nurture more innovative SMEs, said the firm's CEO Tim Tu.

Currently, Credit Suisse Securities is preparing the internal and external procedures to become a BSE member in the near term and link to the exchange's system, said Tu. By comparing the BSE with the Shanghai and Shenzhen bourses, Credit Suisse will help suitable clients to float on the former.

"Foreign securities companies only play a very small part in the NEEQ trading at present due to the concerns over resource endowment and yield on cost," said Tu. "Therefore, the stock connect program, which is now adopted by the Shanghai and Shenzhen exchanges, can be introduced to the BSE so that overseas investors can have more access to the Chinese capital market. Meanwhile, foreign securities firms and overseas investors can participate in the ongoing capital market reform in China."

As Tu understands, the history of Nasdaq in the United States can work as a solid reference. A migration system also exists at Nasdaq, as Nasdaq-listed companies can be transferred to the New York Stock Exchange when they grow big enough for the bigger bourse.

However, an increasing number of quality companies, especially technologically advanced companies, have chosen to stay with Nasdaq, making it the listing venue for the world's technology giants such as Microsoft, Apple and Google, he said.

"The inauguration of the BSE, the exchange's positioning and related systemic arrangements point to the possibility of the BSE growing into the Chinese version of Nasdaq. This is why, foreign institutions are not willing to steer clear of it."

Foreign institutions' quick moves on the BSE is just one snapshot of their increasing interest in the A-share market. Through QFII and stock connect programs between Hong Kong, Shanghai and Shenzhen, Guangdong province, the net inflow of foreign investment reached nearly 241 billion yuan between January and October this year, which has already overtaken the whole-year figure of 208.9 billion yuan in 2020. By the end of October, foreign investors held up to 3.67 trillion yuan worth of A shares measured by market cap, equaling nearly 5 percent of the entire A-share market value. That ratio was merely 0.3 percent a decade ago.

CSRC Vice-Chairman Fang Xinghai said at the China-Singapore (Chongqing) Connectivity Initiative Financial Summit 2021 on Nov 23 that foreign investors have been steadily improving their positions in the A-share market, reflecting their increasing interest in, and recognition by, the Chinese capital market, which has been advancing its further opening-up.

Wong Kok Hoi, founder and chief investment officer of the Singapore-based APS Asset Management Pte Ltd, said the launch of the BSE may impel foreign investors to change their investment style in the A-share market.