Tue, Jul 08, 2003 - Page 11 News List

Goldman set to invade A-shares stock market

BLOOMBERG

Goldman Sachs Group Inc won permission to invest in China's Class A shares as the communist country opens its US$515 billion yuan-denominated stock market to international investors.

Goldman is the latest to win permission from the China Securities Regulatory Commission to become a qualified foreign institutional investor. The third-biggest US securities company by capital follows in the footsteps of UBS AG, Nomura Securities Co, Morgan Stanley and Citigroup Inc.

"We are pleased to have received QFII status and look forward to participating in China's domestic markets," Edward Naylor, a Hong Kong-based spokesman for Goldman, said in an e-mail statement. Goldman chose HSBC Holdings Plc as its custodian bank in China, Naylor said.

China promised to open its markets as a condition to joining the WTO. Its yuan-denominated Class A shares account for about 99 percent of the market. The remainder, comprising foreign currency-denominated Class B shares, is already open. China is betting further opening of its markets will force Chinese companies to improve governance and management.

Market reforms aimed at weeding out corruption and improving corporate reporting are under way. A Ministry of Finance survey of 2001 earnings reports by 192 publicly traded companies found half of them cooked their books, misstating profit by US$291 million.

In China's biggest corporate fraud case, Guangxia Yinchuan Industry Co, a traditional Chinese winemaker, was fined 600,000 yuan in May 2002 for inflating its earnings Foreign investors in China's Class A securities must have at least US$10 billion in assets and at least US$50 million to invest in yuan-denominated Class A shares, convertible bonds, mutual funds and shares sold in initial public offers. Class A shares trade on the Shanghai and Shenzhen exchanges.

Deutsche Bank AG, HSBC and Standard Chartered Plc are among other foreign institutions awaiting approval to invest in China's Class A securities.

The Shanghai A-share index has gained 11 percent this year.

The Shenzhen A-share index has risen 5 percent in the same period, making it the world's sixth-worst performer.

After foreign investors receive approval to invest in the Class A securities, they are given an investment limit. UBS has a US$300 million limit; Nomura US$50 million; Morgan Stanley US$300 million; and Citigroup US$75 million. Goldman's limit has yet to be set.

Approved investors must place money they plan to invest with an approved custodian bank in China within three months of receiving permission. UBS and Nomura chose Citigroup Inc's Citibank unit. Morgan Stanley chose HSBC, while HSBC picked China Construction Bank.

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