China's new sci-tech board shows the country's determination to continue pushing forward financial reforms and enhance the capital market's capability to serve the real economy, an expert has said.
"Investors will cheer the news as it will allow many of China's innovative companies to be accessible to both domestic and global investors," Brendan Ahern, chief investment officer at Krane Funds Advisors, told Xinhua in an exclusive interview on Tuesday.
China's top securities regulator released regulations on the science and technology innovation board last week. It pilots registration-based initial public offerings (IPO) system, which is seen as a major reform step for China's capital market.
The new sci-tech board in the Shanghai Stock Exchange (SSE) focuses on companies in high-tech and strategically emerging sectors such as new generation information technology, advanced equipment, new materials and energy, and biomedicine, according to the China Securities Regulatory Commission (CSRC).
Under the pilot registration system, eligible companies can become listed by filing required documents. Currently, new shares of the A-share market are subject to approval by the securities watchdog.
Ahern said innovative companies in China are in need of investor capital to drive their growth opportunities. With the introduction of the new board, foreign investors are offered "an opportunity to gain exposure to many of China's new growth engines that complement traditional drivers."
The regulations on the new board, implemented on a trial basis, took effect on March 1. On the same day MSCI announced its decision to increase the weight of the yuan-denominated A-shares in its indexes. The global index provider plans to raise the inclusion factor from 5 percent to 20 percent in three stages this year.
"The new Shanghai board will complement MSCI's decision by providing an investment landscape that is better aligned to and reflective of China's economy," said Ahern, who noted that MSCI's inclusion of mid cap and large cap ChiNext companies to their indexes provides investors with companies from sectors that historically have comprised a smaller investment opportunity due to the small sector weights.
The expert emphasized that financial reforms have accelerated over the last several years due to the efforts of both regulators and policymakers.
"Our investments in China today at KraneShares would not have been feasible a few years ago if were not these efforts," he said.
Ahern added that he expected that "further reforms will enhance investors' confidence which will reward further flows into China in the years to come."
The Nasdaq-style start-up board in Shanghai has fueled hopes that it would bring about positive changes in China's equity raising stance that investors have been seeking.
The Nasdaq exchange is reflective of the innovative companies and their acumen in creating new technologies, the expert pointed out. He said the U.S. institutional marketplace provides an easy source of capital for global investors to invest in these companies.
Talking about what China can learn from U.S. experience, Ahern said that strong accounting standards and regulatory environment will be critical to gaining investors' trust.
"There is a great opportunity to both assist domestic companies in raising capital while adhering to high standards," said Ahern.
