Shenzen stock market grows as US market trades in nanoseconds

Can you guess which is the fastest growing stock market in the world?  If you guessed, China’s Shenzen Stock Exchange then you are correct.  According to the Financial News, the volume of cash equities traded on the Shenzhen grew 790% between 2005 and 2010 while the value of traded equities soared 2,250% over the same period.  This compares to a 202% increase in volume for NYSE Euronext during the same time period.  But more disturbing is that the value of cash equities traded on NYSE Euronext actually shrank by 0.3% during this time period.  Apparently, trading a billion shares a day of a $4 bank stock is not necessarily good for adding to the value of traded equities.  So, what gives, why is Shenzen growing so fast?  The answer has to do with a subsidiary that they created called ChiNext.  According to their website, “ChiNext offers a new capital platform tailor-made for the needs of enterprises engaged in independent innovation and other growing venture enterprises. The difference between ChiNext and the main board lies in their mechanisms of financing, investment and risk management for issuers at various stages of development, rather than simply the sizes.Chinext Website  No there’s a novel idea, have a stock exchange focus on raising capital for small and mid sized companies to help them grow and create more jobs.  Sound like something the markets in the US used to do before they got hijacked by the hyper trading, nanosecond computer geeks.

 It looks like the Chinese are now one step ahead of us when it comes to capital raising (remind us again who the capitalists are supposed to be).  It is now time for us in the trading community to take back our stock market.  We need to start focusing on creating jobs and helping companies raise capital because its readily apparent that the banks who have gotten all that free money from the Fed have no interest in lending it out.

 This brings us to the recent testimony by David Weild of Grant Thornton to the House Financial Services Committee. As many of you know by now, David is a friend of ours that shares many of the same viewpoints.  David testimony is filled with amazing facts about our dwindling stock markets that should send a shiver up your spine.  We won’t go into all of them in this note (his testimony is attached), but here is a sample:

 -In 1997, there were a total of 8,823 publicly listed companies on all US exchanges. In just 13 years, that number has dropped 42% to a mere 5,091 listings as of February 2011.

-The US has averaged only 129 IPO’s per year since 2001. In an average year, it takes 360 new listings just to replace delistings from US stock markets.

 David has a few recommendations to get us back on track in this country when it comes to helping small to mid sized companies raise capital.  First, he supports an increase to the Reg A ceiling from $5 million to $50 million but calls for some requirements which would mandate that issuers supply more information to the SEC.  But more importantly he calls for the chartering by Congress of a new national stock market.  This stock market would focus on providing  the infrastructure needed to support small public companies.  It would bring back the economics for brokerage firms to support these small companies before and after they go public.

 The Chinese have seen the beauty of this model and already making it work with ChiNext.  It’s about time that we start acting like capital raisers again and take our stock market back.