Chinese authorities have gone to great lengths to restore order in the chaotic A-share market with little success.
Market reform has yet to show any significant results. It’s uncertain whether its objectives will be achieved at all.
Meanwhile, the turmoil in the stock market is pummeling investor confidence.
With fewer investors willing to take risks, transactions are sharply down. That gives share prices very little chance to recover.
The central government is pushing structural reform at the same time, not least to curb oversupply in key industries.
On Saturday, China Railway announced that its fixed-asset investment target for 2016 is 800 billion yuan (US$121.8 billion), unchanged from last year.
Capping railway fixed-asset investment can help stabilize the economy and benefit upstream industries such as iron, steel and construction materials which are grappling with overcapacity.
Related stocks such as China Railway Group (601390.CN) and China Railway Construction (601186.CN) fell to record lows in August.
As for the real estate sector, the government’s destocking policy has sparked speculation.
The sector fell 8.8 percent last week. The outlook is dim.
Ren Zhiqiang, former chairman of Huayuan Property (600743.CN), said no policy can solve the inventory problems in the property market, especially in third and fourth-tier cities.
Thus, consolidation will continue and some small developers could go bankrupt.
If investors want to bet on a recovery in the industry, they should limit themselves to market leaders.
These include Poly Real Estate Group (600048.CN) and Gemdale Corp. (600383.CN).
Meanwhile, the government should strengthen policy support and the renminbi exchange rate stable.
The sluggish market will continue for some time, so investors may choose to stay on the sidelines.
This article appeared in the Hong Kong Economic Journal on Jan. 18.
Translation by Myssie You
[Chinese version 中文版]
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