A recent announcement from Chinese President Xi Jinping has caused the investing world to listen. In his statement, he claimed that China will be creating a new stock exchange based in Beijing.
Read on to find out how this might affect your investments and what it could mean for the Chinese economy.
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How many stock exchanges does China have?
Currently, there are two stock exchanges set up in China. One is based in Shanghai and the other is located to the south in Shenzhen. Their full formal names are the Shanghai Stock Exchange (SSE) and the Shenzhen Stock Exchange (SZSE).
The total market capitalisation for the companies listed on these exchanges is around $10 trillion (£7.2 trillion). So there’s a lot of money floating about in these markets already. A third stock exchange in China should mean even more money flowing through the country.
Why is China creating a new stock exchange?
It’s been a hectic time for many Chinese companies recently. They’ve been warned of an impending regulatory crackdown on the horizon and yet-to-be-defined rules that are to be imposed.
Some Chinese businesses are listed on US stock exchanges like the NYSE and the Nasdaq. This is mostly because it can be more straightforward to create a listing and raise funds in America. However, these new incoming rules in China could mean that some companies get booted from US stock exchanges.
All this has led to a lot of uncertainty for some massive Chinese businesses. Part of the motivation behind the intervention is to limit the powers of some big homegrown companies.
This new stock exchange in China is targeting small to medium-sized businesses. So, this could be the government’s way of trying to do something positive for smaller firms rather than just placing restrictions on the larger ones. A new exchange should make it easier for more companies to raise money by selling their stock on the open market.
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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 actually open the exchange. It’s the kind of endeavour that typically takes a while – possibly years. But Chinese infrastructure moves fast, so it would be no surprise if this all comes together at a fast 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 investing journey.
Well, the potential restrictions have already had an effect on some big Chinese stocks, lowering their share prices. So if you are investing in a fund that contains some of these companies, your portfolio may have taken a bit of a hit.
China is still part of the ’emerging markets’ umbrella. So if this new stock exchange is successful, it could potentially boost the value of some emerging market funds and investments. However, China never likes to play simple when it comes to business and finance, so I wouldn’t be surprised if there are some more hurdles.
What’s next for China?
Creating the new exchange to support smaller businesses seems straightforward enough, but who knows what might come next from China?
If you are considering investing in the Chinese markets, make sure you do plenty of research and expect the unexpected. There may be some good opportunities ahead from within the country, but it will probably be a bumpy road. So, prepare for volatility, and remember that as with any investment, you may get out less than you invest.
