SIX appeal

A new market for Chinese firms

“When in doubt who will win, be neutral,” a Swiss proverb supposedly advises.

The maxim has served the Alpine nation well and there’s been more than a hint of it again this year as the SIX Swiss Exchange prepares to welcome a group of Chinese firms to Europe’s third-largest bourse.

At least five companies were first to flag plans for listings in Zurich earlier this year – these included construction equipment giant Sany, medical equipment firm Lepu Medical and lithium battery maker Guoxuan High-Tech. Additionally Joincare Pharmaceutical and GEM, a recycler of batteries and electronics, both announced plans to do the same in the last few weeks.

Each announcement trumpeted a secondary listing in Zurich that will be transacted in global depository receipts (GDRs), or shares that can be traded in two or more financial markets – in this case for A-share stocks denominated in yuan.

That’s been made possible by an extension to the Shanghai-London Stock Connect earlier this year, which is also bringing companies from the Chinese bourse into the share trading scheme and extending its international coverage to bourses in Germany and Switzerland.

The claim for the new channel into Zurich is that companies are going to like it because the approvals process should be swifter than most other markets, including Shanghai’s. Issuers are hoping for higher valuations than on other overseas bourses, tapping Swiss asset managers that want exposure to high-growth firms in sectors like new energy and medical equipment.

Reports in the Chinese media have characterised these changes as new signs of success for the Stock Connect programme and further evidence of how China is opening up its capital markets to the wider world

Less mentioned is that interest in the Stock Connect plan in London has been subdued. Only four Chinese firms have listed there since the scheme was set up in the summer of 2019, with no new arrivals from China since October the following year. Low trading volumes for the GDRs, which are often priced at discounts to the underlying equity in Shanghai, have been putting off issuers and investors alike.

The pitch from the Swiss is that Chinese debutants in Zurich are going to get more interest, with Jos Dijsselhof, chief executive of SIX, promising that the first batch of Chinese GDRs will launch later this year.

The Swiss market doesn’t fluctuate as wildly as its peers and it has avoided the worst of this year’s sell-offs in other markets, he told CBN, a Chinese newspaper, in an interview in April.

SIX wants other applications from companies in sectors where the Swiss have existing strengths, such as life sciences and financial services. But it also wants to win business in the tech sector, where Switzerland may be a better place to start the listing journey than the United States, Dijsselhof says.

The context is that Chinese companies could soon be forced out of American stock markets as a result of the Holding Foreign Companies Accountable Act, which aims to remove foreign-jurisdiction firms from US bourses if they fail to comply with local auditing standards for three years in a row. More than 120 Chinese firms are currently at risk of expulsion by US regulators, with no sign that either government is ready to back down over the row.

In this context more Chinese firms looking for international financing could turn to GDRs as substitutes for the American Depository Receipts sold in US markets, which investors have already been dumping on fears of the exodus ahead.

This uncertainty around the audit issue, as well as the souring of the wider political mood between Beijing and Washington, gives rival markets an opportunity to stake their claim as fundraising hubs, something that Dijsselhof hammered home again in highlighting how SIX is an “independent and neutral market”.

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