By Mike Caggeso
Associate Editor
Addressing the China legislature, Premier Wen Jiabao said the government would establish a "Nasdaq-like" board that will allow start-up companies to trade shares in the stock market.
"There're a large number of small companies that want to raise funds and the banking sector is failing to provide them that," Fraser Howie, an analyst at CLSA Singapore Pte., told Bloomberg. "This move will increase the supply of initial public offerings and likely depress prices."
And that's an interesting irony: In creating speculator-friendly Chinese penny stocks, the government is throwing a wet blanket on stocks already struggling to regain momentum, as the Shanghai Stock Exchange is down 29.9% from its Oct. 16 peak.
Jiabao didn't give a timetable when the new exchange would be introduced [or a name for it], though it could be as early as this year.
"We'll begin with announcing the detail rules while we wait for public feedback," Shenzhen Stock Exchange's President Chen Dongzheng said at the National People's Congress meeting in Beijing, Bloomberg reported. "The key is to have a fast, simple process for start-up companies to sell shares on the exchange."
Whenever and however the new exchange develops will be an interesting microcosm of the Chinese economy.
It could catch fire and be one of the many catalysts for the country's long-term growth. Or just as easily, the current wave of unsteady markets around the globe could swallow these start-up companies without the capital to stay in the game.
In either case, it would probably be best for U.S. investors to stand by and watch for now, as the idea of Chinese penny stocks might be too hard on their stomachs – at least for the short term.
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