Date
20 October 2017
The renminbi's expected inclusion in the IMF reserve currency basket could help channel more global capital into Chinese assets. Photo: Bloomberg
The renminbi's expected inclusion in the IMF reserve currency basket could help channel more global capital into Chinese assets. Photo: Bloomberg

A-share market: What lies ahead?

After market close last Friday, the China Securities Regulatory Commission announced that it is tightening the margin financing rules further to prevent systemic risks.

The tighter rules, and the global concerns following the Paris terror attacks, are likely to pressure the mainland markets this week, adding to the 0.26 percent loss of the Shanghai benchmark last week.

Trading activity has picked up in China’s stock markets recently. In the five trading days last week, the average combined transaction volume was 1.2 trillion yuan a day.

Although the level is far below of the peak of 2 trillion yuan seen in June, it’s much better than the lowest point of less than 600 billion yuan that was seen in September.

Margin financing supported high transaction volumes in June. Financing activities increased after a rebound in the market earlier in the year.

After falling for a while in the wake of the market crash in the third quarter, margin financing has picked up again in recent days. As of November 12, the outstanding amount of margin financing was up for eight days in a row.

To avoid a repeat of the “crazy bull” market that was seen earlier this year, the regulator has tightened margin financing rules for new financing transactions.

While authorities are tightening the rules for individual investors, foreign investors have reason for some cheer.

Besides the expansion of Qualified Foreign Institutional Investor and Renminbi Qualified Foreign Institutional Investor schemes, there is now also the prospect of higher status for the renminbi on the international stage.

The International Monetary Fund is likely to include the renminbi in the fund’s special drawing rights currency basket soon.

Observers believe the inclusion will result in at least US$1 trillion of foreign reserves being exchanged into renminbi or other Chinese assets. And some of that money may flow into the A-share markets.

As the renminbi exchange rate will again come into focus, Beijing is expected to do its best to maintain a stable currency.

This article appeared in the Hong Kong Economic Journal on Nov. 16.

Translation by Myssie You

[Chinese version中文版]

– Contact us at [email protected]

MY/DY/RC

a columnist at the Hong Kong Economic Journal

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