17 February 2019
The A-share market is expected to remain turbulent in the short term. Photo: Bloomberg
The A-share market is expected to remain turbulent in the short term. Photo: Bloomberg

‘No short-term bump’ from State Council guidelines

The State Council touts them as the guiding principles for financial reform but market observers say they’re not likely to have a big impact on the Hong Kong and mainland stock markets in the short term.

The four principles unveiled on Friday include letting the market play a decisive role in resource allocation and preventing a disconnect between the financial market and the real economy. The State Council said the government will also strengthen protection for investors and improve investors’ awareness of risk.

But economist Yi Xianrong, from the Chinese Academy of Social Sciences’ Institute of Finance and Banking, told the Hong Kong Economist Times that the root cause of many problems in the financial market is the government’s implicit guarantee, which should be removed. 

Mainland brokers said the guidelines indicate that growth of the financial market is a government priority, which will benefit the stock market in the long run. But, reforms take time and the A-share market will remain turbulent in the short term.

That view was echoed in Hong Kong where other factors are expected to have a more immediate impact. A CLSA Asia-Pacific Markets executive said the sluggish macro economy and property market are putting the Hong Kong stock market on a course for bottom in the second half.

Fong Wai-cheong, director for Asia-Pacific equity investment at Baring Asset Management (Asia) Ltd., said the short-term outlook for the stock market had not improved.

Fong said the market still needs time to digest negative mainland macro economic data while stimulus efforts like the Shanghai-Hong Kong Stock Connect scheme are not expected to come on stream until the second half. Geopolitical risks in Southeast Asia were also at play.

Ho Wen-chun, economy and strategy analyst at Bank of Communication’s Hong Kong branch, said he has shifted some money into utility stocks to avoid market risk.

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