Can Shanghai take on BSE now?

Till Thursday, China’s chief attraction to the outside world lay in its manufacturing sector which drew hordes of foreign investment. But its capital market — with its low trading volumes and hardly any foreign investment — was no match to the roaring stock exchange in India.
But a day later, things have changed. Friday’s listing of Industrial and Commercial Bank of China (ICBC) — which pulled off the world’s largest initial public offering (IPO) — promises to turn Shanghai into a strong competitor for Bombay Stock Exchange.
The IPO attracted $21.9 billion in Hong Kong and Shanghai markets. Though a major part of the offers were made in Hong Kong, Shanghai’s share exceeded a impressive $5 billion. Immediately on listing, ICBC’s share gave a huge boost to Shanghai’s market capitalisation and accounted for 20% of its index.
The boost that Shanghai recieved is not without official design. This is the first time that a major Chinese company has gone for simultaneous listing in Hong Kong and Shanghai, indicating the official desire to allow Shanghai get a piece of the action along with the Hong Kong market.
The simultanous listing is a major “experiment” by the Chinese government that paid off, industry sources said. The move assumes significance due to the fact that a host of IPOs by major Chinese firms are expected to take place in the coming months.
Market sources said the listing of ICBC would help the Shanghai exchange emerge stronger and attract larger foreign investment in the coming months. This will also help increase foreign investment in equities from the present level of $8.25 billion to $20 billion.
Although foreign investors played a minor role in Shanghai with ICBC IPO, they are expected to move in in a big way in the secondary market.
The Chinese government recently completed a major market reforms programme of converting a vast quantity of non-tradable shares into tradable equities. This reform helped expand and deepen the stock markets in Shanghai and Shenzhen by bringing about a fresh flow of new shares of state-run firms that had hitherto remained untradable.
Shanghai investors went into a frenzy booking orders for ICBC shares. The high level of demand led to expectations that the stock would post an impressive rise on its debut. But it rose a mere 5.1% in Shanghai, indicating that the market had accepted the official line of not allowing the share to get volatile.

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