Shenzhen Stock Exchange Warns Four Companies Simultaneously over Foreign Ownership Levels

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The Shenzhen Stock Exchange (SSE) has made the historically unprecedented move of dispensing advance warnings to four companies simultaneously over their foreign ownership levels.

On 28 May the SSE issued advance warnings to four companies including Central Testing International (华测检测), pharmaceutical company Hangzhou Tigermed (泰格医药), furniture company Suofeiya (索菲亚) and electrical appliance maker Midea (美的集团)

According to the “Several Regulations for Shanghai-Hong Kong Stock Market Transaction Reciprocal Linkage and Reciprocal Connection Mechanism Trials” (沪港股票市场交易互联互通机制试点若干规定) the total shareholdings of all offshore foreign investors in a single A-share company cannot exceed 30% of stock.

When the shareholdings of foreign investors in a single A-share hit the 26% threshold both the Shanghai and Shenzhen bourses will publish a notification, while at the 28% threshold further purchases will be temporarily halted until the percentage drops to less than 26%.

Once foreign shareholdings exceed 30% the bourses will launch mandatory selling off procedures.

As of 27 May the holdings of foreign investors in Central Testing International stood at 26.10%, while for Hangzhou Tigermed the figure was 26.04%, for Suofeiyi it was 26.90% and for Midea it was 27.33%.

This included holdings of foreign investors via the qualified foreign institutional investor (QFII) and renminbi qualified foreign institutional investor (RQFII) scheme, as well as Shenzhen Stock Connect.

The Shenzhen bourse frequently issues advance warnings over foreign ownership levels, particularly since an ongoing rise in foreign investment in A-shares since 2019.

In 2019 net inflows of northbound funds under the stock connect scheme reached a record high of 351.74 billion yuan.

The trend of foreign investment inflows has continued since the start of 2020. As of 28 May Shanghai Connect net inflows were 2.57 billion yuan, while Shenzhen Connect net inflows were 248 million yuan.

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