Date
28 March 2017
Chinese Premier Li Keqiang (left) shakes hands with Malaysian Prime Minister Najib Razak in Kuala Lumpur on Monday. China wants to participate in two high-speed rail projects in Malaysia. Photo: Bloomberg
Chinese Premier Li Keqiang (left) shakes hands with Malaysian Prime Minister Najib Razak in Kuala Lumpur on Monday. China wants to participate in two high-speed rail projects in Malaysia. Photo: Bloomberg

China A shares still face selling pressure

The Shanghai Composite Index has been hovering around 3,600 points over the last two weeks.

Investors have run out of patience, and the Shanghai market dropped more than 1 percent on Tuesday morning.

The market started to stabilize later in the day after authorities lifted an order requiring Chinese brokerages to buy more shares than they sell in their proprietary trading each day.

The Shanghai market closed at 3,616 points on Tuesday. 

Market turnover in both Shanghai and Shenzhen markets fell by 150 billion yuan (US$23.5 billion) to 858.6 billion yuan from the previous day, in a sign that the market still faces downside risk due to cooling investor interest.

The China Securities Regulatory Commission (CSRC) removed the ban on local brokerages adopting net selling positions in their proprietary trading on a daily basis.

The move would allow brokerages to be more flexible in selling shares, which may help boost their earnings this year.

As a result, mainland brokerage stocks surged following the news in afternoon trading.

Founder Securities (601901.CN), Everbright Securiites (601788.CN), Pacific Securities (601099.CN) and Soochow Securities (601555.CN) all jumped around 2.8 percent.

The authorities imposed the restrictions on brokerages in July as they scrambled to stop the market slide.

The CSRC is now confident to remove the ban as the market has stabilized.

However, the measure would exert huge selling pressure if brokerages decide to sell their proprietary trading stocks. Therefore, it’s not really a good news for the overall market.

Meanwhile, the market lacks a major policy incentive.

Chinese leaders have been busy making overseas trips and promoting the One Belt, One Road strategy has become their top priority in these state visits.

In his recent visit to Malaysia, Premier Li Keqiang reaffirmed China’s interest in participating in two high-speed rail projects.

The Malaysia-Singapore project requires an investment of around US$10 billion, while the railway line running through southern Malaysia will cost US$2.2 billion.

Three Chinese railway firms — China Railway Group (601390.CN), China Railway Construction (601186.CN) and China Communications Construction (601800.CN) — have made a joint bid for the southern rail line.

Speaking at the fourth leaders’ meeting of China and Central and Eastern European countries in Suzhou on Tuesday, Li said China is keen on building a high-speed railway in the Baltic Sea area.

Railway and infrastructure stocks reacted calmly to the news. The three Chinese railway companies all dropped by over 1 percent.

Infrastructure projects have become the focus of China’s push for domestic growth as well as its “going out” strategy.

The Central Urban Work Conference will be held soon under the theme of urbanization. The upcoming event is likely to boost property and infrastructure stocks.

It’s been reported that the meeting aims to accelerate urbanization, optimize the layout of cities, and enhance urban infrastructure, among other goals.

The focus on urban security management may boost relevant stocks, such as China Security & Fire Co. (600654.CN), a company specializing in smart city security systems.

This article appeared in the Hong Kong Economic Journal on Nov. 25.

Translation by Julie Zhu

[Chinese version中文版]

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JZ/DY/CG

a columnist at the Hong Kong Economic Journal

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