The Internationalization of China’s Equity Markets

IMF Working Papers, February 10, 2023

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The Internationalization of China’s Equity Markets

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Bibliographic details

• Authors: Juan J. Cortina, Sergio L. Schmukler, Jasmine Xiao
• Published: February 10, 2023
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9798400233876.001

Overview and scope

• Title: The Internationalization of China’s Equity Markets
• Authors: Juan J. Cortina, Sergio L. Schmukler, Jasmine Xiao
• Publication type: IMF Working Paper No. 2023/026
• Publication date: February 10, 2023
• Pages: 62
• DOI: https://doi.org/10.5089/9798400233876.001
• ISBN: 9798400233876
• ISSN: 1018-5941
• Subject keywords: China's equity markets; Emerging and frontier financial markets; equity financing; equity market liberalization; firm investment; Foreign corporations; foreign investors; Global; international investors; internationalization process; issuance activity; Market capitalization; portfolio holding; Stock Connect; Stock markets; Stocks; unconnected firm

Research question and methodology

• Research focus:
  • Study of the effects of post-2012 internationalization events in China’s equity markets.
  • Comparative analysis of:
  • (i) domestic listed firms relative to firms that already had access to international investors, and
  • (ii) domestic listed firms directly connected to international markets relative to those that were not.
• Timeframe emphasized: internationalization process accelerated after 2012; origins in the early 2000s.

Key findings

• Market access and activity:
  • Large increases in financial and investment activities for domestic listed firms.
  • Large increases in financial and investment activities for firms connected to international markets.
  • These increases had significant aggregate effects.
• Financing composition:
  • The rise in firms’ equity issuances was primarily and initially financed by domestic investors.
• International investor behavior:
  • International investors’ portfolio holdings in Chinese equity markets and ownership in firms increased markedly only once Chinese firms’ locally issued shares became part of the MSCI Emerging Markets Index.

Implications for markets and policy (as highlighted by the paper)

• Internationalization of equity markets can lead to substantial increases in equity financing and firm investment activity, with material aggregate effects.
• Inclusion in major global indices (example: MSCI Emerging Markets Index) appears closely associated with a marked increase in international portfolio holdings and ownership in local firms.
• Domestic investor capacity played a crucial initial role in financing increased equity issuance following internationalization steps.

Publication and access information

• Series: Working Paper No. 2023/026
• Issue: 026
• Stock No: WPIEA2023026

IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

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