Some Chinese stocks briefly surge 30% as investors bet on a new Beijing exchange opening

BEIJING — Shares of more than 60 little-traded mainland Chinese stocks briefly surged by at least 10% Monday as investors bet on the companies’ potential inclusion in a new Beijing stock exchange.

Chinese President Xi Jinping announced late Thursday the capital city would launch the country’s third stock exchange to help small and medium-sized businesses raise capital.

These and other privately run businesses contribute to more than 80% of jobs nationwide, but have had a harder time than state-owned enterprises in getting financing from banks, the largest of which are state-owned.

The new Beijing exchange will initially draw from stocks already traded over-the-counter in the “select” section of the “New Third Board,” or National Equities Exchange and Quotations (NEEQ), the securities regulator said Friday.

This pool of 66 select stocks all rose in Monday afternoon trading, with nearly a third briefly climbing about 30%. Only five of the companies have market capitalizations of more than $1 billion. Daily trading volume per stock was in the millions of yuan on Monday, compared with hundreds of millions of yuan for the largest stocks traded on the mainland.

Metal sheet manufacturer Speedbird, specialized rubber products manufacturer Tongyi Aerospace and packaged food company Zhulaoliu were among the top 10 advancers.

The Beijing exchange’s launch date has not been announced yet. Authorities are gathering public comment on rules for the new trading venue through Sept. 22.

Plans for the Beijing exchange mark Chinese authorities’ latest attempt to improve the ability of the local stock market to serve as a financing channel for companies.

The dominance of sentiment-driven retail investors has contributed to much speculative activity in the mainland stock market. It is the second-largest in the world but far younger than that of the U.S. at about three decades old.

The mainland’s slow IPO-approval system and high earnings requirements have meant that many of China’s largest companies, especially technology giants like Alibaba and Tencent, have instead chosen to list in New York and Hong Kong. However, tighter scrutiny on Chinese listings in the U.S. by both countries’ governments has essentially halted the flow of Chinese IPOs to New York this summer.

In July 2019, China launched the Star board in Shanghai to test a faster registration-based IPO process and higher thresholds for investor access. However, analysts have said the stock board lost momentum amid IPO delays in the last year.

But authorities have expanded some of the practices tested on the Star board, like larger daily stock trading ranges, to other parts of the mainland market.

Analysts are hopeful the Beijing stock exchange will only add to those improvements to the market.

Cao Yanghui, director of the Nanhua Futures Research Institute, a brokerage based in Hangzhou, said in a statement that the establishment of the Beijing exchange indicates changes to the financial market are “proceeding at a relatively fast pace.”

“If everyone felt previously that the (IPO) registration system was rather distant, then it may now be close at hand,” Cao said, according to a CNBC translation of his Mandarin-language comments.

While the new stock exchange will initially draw from the New Third Board’s select group of companies, public materials say a registration-based listing system will be implemented in the future.

Shares will be allowed to rise or fall by 30% per day, a relatively wide range for Chinese markets.

“We see Beijing Exchange as positioned to support mid/small sized firms and as a hub where the best of those firms can go to list on Shanghai and Shenzhen exchanges,” Morgan Stanley equity analyst Katherine Liu and a team said in a Sept. 2 note.

They added that “near-term sentiment and liquidity should continue to drive the brokers’ rally.”

Stock trading volume has climbed in the last two months. Monday marked the 34th-straight trading day with volume above 1 trillion yuan, according to Wind Information.