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China: Stock market slump threatens to spoil Nasdaq-style board plan

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[BEIJING] A sell-off in Chinese stocks threatens to take the fizz out of one of the country's biggest capital market reforms in years.

Sentiment has soured just as China plans to open a Nasdaq-style board, expected as soon as June. After surging at the start of the year, the Shanghai Composite Index has tumbled 11 per cent from an April high. It suffered its biggest loss since 2016 on Monday after US President Donald Trump threatened to impose higher tariffs on Chinese imports. Worst still, given the nature of the new board, the ChiNext gauge of tech stocks fell even harder.

"The slump in the stock market will definitely impact progress of the new tech board," said Jiang Liangqing, a Beijing-based fund manager at Ruisen Capital Management. "If the Shanghai benchmark falls below the year's low, it might be a serious problem and may even lead a postponement of the board."

Neither China's securities regulator nor the Shanghai stock exchange immediately responded to requests for comment.

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It's not the first time that China's reform efforts have encountered bumps in the road. The equity market rout last year - when US$3 trillion was wiped from the market after it hit a January high - derailed plans for China depositary receipts, while proposals for another listing venue for so-called strategic emerging industries went south in 2016.

China is introducing the Science and Technology Innovation Board to encourage its innovative firms to list at home. Its rules are more closely aligned with global bourses, and regulators have waived restrictions on how companies are priced when they list. They've also limited access for retail investors who dominate the country's equity markets.

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Mr Jiang said the restrictions on access are a concern because companies may find it difficult to attract demand from institutional investors as the market sours.

"The new board mainly focuses on technology companies, which are more vulnerable to market fluctuations compared to more established businesses," Mr Jiang said. "Some issuers may raise less money than planned or even fail to get deals done."

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Mark Huang, an analyst at Bright Smart Securities in Hong Kong, said the board's prospects could be alright if the market stays in a "reasonable range". Chinese stocks staged a mini recovery Tuesday, with the Shanghai Composite closing up 0.7 per cent and the ChiNext advancing 0.6 per cent.

"Technology startups are driven significantly by valuations, which are mainly affected by liquidity and risk appetite," Mr Huang said. "Pay attention to events that may impact those, as well as economic data."

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China is scheduled to release April trade figures on Wednesday and then inflation and money supply data in the following days. Export growth is forecast to slow to 3 per cent from a year earlier compared with an increase of 14.2 per cent in March.

State-backed Securities Times, in a commentary Tuesday, said steady progress had been made since Shanghai stock exchange started accepting listing applications in March, though it also called for patience.

"This is a major reform, so China must try its best to ensure the launch of the new board," said Sun Zheng, an analyst at China Development Bank Securities. "It is possible there will be some fine-tuning, but the pace is unlikely to be affected. This is a political task."

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