‘..a new era of transparency is emerging.’ [With regard to listed companies on China’s domestic A-share markets]. That’s according to Jing Chen, Elizabeth Dedman, Muhammad Yahya Ghazali and Ja Ryong Kim, all from the University of Notingham in the U.K. writing in the paper highlighted this week.
The researchers set out to see if the withdrawal of the state in China’s domestic stock markets has led to better information and therefore more efficient pricing?
To remind, the Shangahai and Shenzhen market date back to only 1990 and 1991 respectively. Initially sorry SOE’s were listed with the government holding majority stakes in the form of ‘non-tradeable’ shares. Needless to say both markets got off to a slow start.
In 2005 though, recognizing a problem, the government began to reform the system converting many non-tradeable shares into a single class of tradeable stock. This was followed by greater analyst coverage and better forecasting over time from these analysts. This, the paper suggests, was due in large part to the ownership shift.
They also highlight in the early days of China’s stock markets a high degree of synchronicity was a hallmark of stock price movements; but that’s changed. Also worthy of note is stocks favored by QFII investors seem to offer up more and better information allowing for more efficient pricing.
In summary China’s domestic stock markets were non-functioning for a while in terms of reliable price discovery; but this is no longer the case for many listed entities.
I’d add a caveat here though that what the paper highlights is a move from a terrible situation to one less terrible. China’s domestic stock markets are still some way from more efficient developed market models in many respects, price discovery being just one of them.
You can read the paper in full by following this link Greater Transparency.
Happy Sunday.