Not content with setting up a "stock connect" between itself and Hong Kong, the Shanghai Stock Exchange is on the acquisition path in Asia, it seems.
The Chinese exchange has put in a bid to acquire a stake of up to 40% in the Pakistan Stock Exchange, according to The Nikkei Asian Review.
The publication has just run an exclusive on that information. If confirmed, it would be the first international acquisition for a Chinese stock exchange.
The Shanghai market is China's biggest, although there is also a tech-focused exchange in Shenzhen, just across the border from Hong Kong. The Shenzhen exchange has also announced a "stock connect" with Hong Kong that is due to begin by year-end. There's also a little-known market in Beijing called the NEEQ, which trades shares of privately held companies.
The stock-connect deals allow two-way investment between the markets involved. Since China's domestic A shares trade at much higher multiples to earnings than the China-focused H shares and Red Chip shares listed in Hong Kong, there has been much more interest in investment heading out of China than in the other direction.
To me, it's a pretty left-field option for the Shanghai exchange to invest in the Pakistan Stock Exchange, formed at the start of the year when the Lahore, Karachi and Islamabad markets merged.
But in geopolitical terms, it makes sense. China's two most-restive provinces, Tibet and Xinjiang, border Pakistan. There's the Dalai Lama and Uighur separatists for Beijing to contend with. Pakistan is also a suitable ally in China's dealings with India, the other population heavyweight in the region.
The Shanghai exchange is one of two suitors for its Pakistan counterpart, Ayyaz Afzal, the former CEO of the Islamabad stock market, told The Asian Nikkei Review. He now works for a unit under the new exchange. A Middle East stock exchange is the other bidder, but that was not specifically identified.
A deal could be done by March. The article was essentially a bit of an advertisement, since the Pakistan exchange will accept more letters of intent through the end of the year. A source at the Shanghai Stock Exchange did not confirm the report, nor deny it.
Pakistan was the very first place that China selected for investment in its $40 billion project to build a "new Silk Road" between Asia and the West, as Bloomberg explains.
China Three Gorges South Asia Investment will build the Karot dam on the Jhelum river near the capital Islamabad, according to China's foreign ministry. It will be a $1.65 billion investment -- more evidence of China's use of "economic diplomacy" to win friends in the emerging world through much-needed infrastructure projects.
The Shanghai Stock Exchange's deal would not be an unprecedented bid for an exchange in the Asia Pacific region. The Australian Securities Exchange entered merger talks with its counterpart and would-be suitor the Singapore Exchange in late 2010. The move was blocked by the Australian Treasurer at the time, Wayne Swan, after Australia's powerful Foreign Investment Review Board said it would not be in the nation's interest.
