Financials fuel rally in Shanghai

Proposals to lift ownership limits in JV firms bolster market sentiment

Equities ended higher on Monday on robust gains in the financial sector, including banking, insurance and brokerages, following China's decision to open up the financial sector to foreign investment.

Bank of Wujiang rose by the intraday limit of 10 percent to 10.63 yuan ($1.6) while Ping An Bank rose 4.8 percent to 12.9 yuan. Bank of Wuxi rose 4.9 percent to 8.79 yuan.

On Friday, Zhu Guangyao, vice-minister of finance, said the country will raise the limit on foreign ownership in joint-venture firms in the futures, securities and funds sectors from the current 49 percent to 51 percent, which means that foreign firms will be able to become large shareholders in Chinese financial service providers.

During the past 15 years, the maximum limit for foreign capital in a JV in the financial sector was between 33 percent and 49 percent. The move will give foreign investors greater access to the financial services market in China, according to Zhu.

He said the 51 percent limit would also be lifted after three years. Foreign capital will have no limit on the ownership in a JV in the financial sector in China by then.

Analysts said that the move is one of the greatest moves for financial market opening-up, and can have lasting, positive impact on China's financial market.

"In the future, foreign capital will have more room in China's financial market," said Shao Yu, chief economist with Oriental Securities.

"With more room to operate in China, foreign capital will also allocate more resources in the China market and operate with long-term strategies," said Shao.

Lian Ping, chief economist with Bank of Communications, said that a stable financial market in China provides opportunities for further opening-up.

"Smaller banks, insurers, brokerages, futures and fund companies are likely to be the first ones with more foreign capital ownership in the near future," he said.

State-owned, large financial institutions such as big lenders are not very likely to see a sudden surge in foreign capital ownership, he said.

The rally on Monday is an immediate response to the government move, said a research note from Sinolink Securities.

"The move will not only expand size of China's financial market, but also enhance overall efficiencies of financial institutions and attract more global investors", said the research note.

The Shanghai Composite Index rose 0.44 percent to 3,447 points, while the Shenzhen Component Index rose 0.43 percent to 11,695 points.