CDRs a positive for A-share market

Overseas high-tech assets expected to return

The issuance of China Depositary Receipts (CDRs) is very conducive to capital increment in the Chinese mainland capital market, but the introduction of high-tech assets will definitely squeeze the funds invested in the stocks of traditional companies, a securities expert said.

“For the A-share market, traditional companies are in the majority. Thus, the returns of high-tech firms will be effective and complementary,” Li Daxiao, an analyst at Shenzhenbased Yingda Securities, told the Global Times on Thursday.

Late on Wednesday, the China Securities Regulatory Commission (CSRC) released nine documents, setting rules for the issuance, listing and trading of CDRs.

The new policy supports innovative companies in issuing stocks or CDRs on the Chinese mainland, the CSRC said in a statement on its website.

For pilot companies that are listed overseas, their market valuation should be no less than 200 billion yuan ($31.3 billion), said the statement.

Given the high threshold, only several overseas-listed Chinese high-tech firms, including Alibaba, Tencent and Baidu, are able to meet the standard, said Dong Dengxin, director of the Financial Securities Institute at the Wuhan University of Science and Technology.

However, the rollout of CDRs has a more symbolic meaning, according to Dong. “The IPO of innovative enterprises and the return of unicorns through CDRs show that the inclusiveness and openingup level of the A-share market has significantly improved,” he said, noting that this is also part of the country’ s registration based stock listing reform.

The CSRC on Wednesday approved the launch of six Chinese mutual funds, which would be allowed to become “strategic investors” in the upcoming listing of high-tech firms.

This will greatly provoke shock in the secondary market, as the amount of capital injected is reduced, analysts said.

“[Investors] should notice that the firms in the emerging economy sector have relatively lower dividend yields but higher valuation,” said Li.