China permitted its citizens into the formerly foreign-reserved B-share counter on February 28, but limited trade to forex savings deposited at banks before February 19.

The restriction is expected to be lifted on June 1, which means that all of the US$75 billion personal foreign exchange savings in China will be freed onto the market.

Securities analysts have forecast that the coming month will trigger another liquidity-driven rally in the B-share market after the initial opening in February, which fuelled investment fever as local investors flooded in, seeking bargains in the B shares, whose prices were at a sharp discount to A shares.

A recent investigation by the Securities Times indicated that about half of investors in the B-share market harvested more than 40 percent in gains in the first half of the year.

Nearly 30 percent of investors said their yield was as much as 80 percent.

Eighty percent of investors were optimistic about the medium- and long-term prospects of the hard-currency market on expectations of more market liquidity in June.

"The past few months have been a dynamic period for the B-share market,'' said economist Xiao Zhuoji.

He said the B-share opening to local investors is important for boosting vitality in the market.

On the other hand, the exit of some foreign investors, who have sold their B shares to cash in on hefty gains, is a normal phenomenon and is countered by fresh foreign capital entering the market.

Foreigners are most concerned about the next wave of B-share listings and more concrete B-share boosting policies, said a European securities analyst who declined to be named.

Though some of them are still taking a wait-and-see attitude in the short-term, it is generally believed that the long-term prospects of the B-share market is bright.

Analysts predict that there will be a new batch of B-share IPOs (initial public offerings) and secondary share issues in the second half of the year.

The listings can only be one or two months away, they said, echoing top securities regulators' remarks recently that the authorities will try to expand the B-share market with new listings after the opening to locals.

Revised regulations on B-share listings will be announced soon.

China only allowed a handful of B-share listings in 1999 and 2000 because of weak market conditions.

But the flood of many local investors since February has propped up investment sentiment as market liquidity has improved.

Foreign investors are still looking for further reforms in the sector, including better quality from listed companies and more transparency, said the foreign analyst.

Many are also expecting a final merger of the A- and B-share markets, which the government has promised but is likely to take a long time to realize because of foreign exchange controls, he said.

(China Daily 05/30/2001)