China hopes to create new stock exchange in Beijing
A recent announcement by Chinese President Xi Jinping made the investment world listen. In his statement, he claimed that China will create a new Beijing-based stock exchange.
Read on to find out how this could affect your investments and what it could mean for the Chinese economy.
How many stock exchanges does China have?
Currently, there are two exchanges in China. One is based in Shanghai and the other is located south of Shenzhen. Their full official names are the Shanghai Stock Exchange (SSE) and the Shenzhen Stock Exchange (SZSE).
The total market capitalization of companies listed on these exchanges is approximately $ 10,000 billion (£ 7,200 billion). So there is already a lot of money circulating in these markets. A third stock exchange in China should mean even more money flowing in the country.
Why is China creating a new stock exchange?
It has been a turbulent time for many Chinese companies recently. They have been warned of an imminent regulatory crackdown on the horizon and of yet to be defined rules that must be enforced.
Some Chinese companies are listed on US stock exchanges such as the NYSE and the Nasdaq. This is mainly because it can be easier to build a list and fundraise in America. However, these new rules entering China could mean that some companies will be kicked out of US stock exchanges.
All of this has led to a lot of uncertainty for some large Chinese companies. Part of the motivation behind the intervention is to limit the powers of some large local businesses.
This new exchange in China targets small and medium enterprises. So this could be how the government is trying to do something positive for small businesses rather than just restricting the bigger ones. A new stock exchange is expected to allow more companies to raise funds by selling their shares on the open market.
When will the new exchange open?
The intention to open a new exchange was only announced a few days ago.
No one knows for sure when China plans to open the stock exchange. It’s the kind of effort that usually takes a while, if not years. But China’s infrastructure is changing rapidly, so it wouldn’t be surprising if all of this happened at a rapid pace.
What will a new stock exchange in China mean for investors?
While all of this is interesting, I’m sure you’re probably wondering how this could impact your own investment journey.
Well, the potential restrictions have already had an effect on some major Chinese stocks, driving down their stock prices. So if you invest in a fund that contains some of these companies, your portfolio may have been affected a bit.
China is still part of the “emerging markets” umbrella. So, if this new exchange is successful, it could potentially increase the value of some emerging market funds and investments. However, China never likes to play it easy when it comes to business and finance, so I wouldn’t be surprised if there are more obstacles.
What’s the next step for China?
Creating the new exchange to support small businesses sounds straightforward enough, but who knows what might happen next from China?
If you are considering investing in the Chinese markets, be sure to do plenty of research and expect the unexpected. There may be good opportunities ahead in the interior of the country, but it will likely be a bumpy road. So be prepared for volatility and remember that as with any investment you can get out for less than you invested.
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