Chinese officials putting weight behind equity market

January 15, 2019 10:17
Chinese stocks have become undervalued following the markets' steep slide last year, a CSRC official has noted. Photo: China Daily

Chinese officials are again attempting to talk up the stock market, just like what they did in 2015. So, the question arises: are authorities trying to create another bull market through manipulation?

Fang Xinghai, vice chairman of the China Securities Regulatory Commission (CSRC), said over the weekend that China’s stock market is “undervalued”.

Fang made the comment during a conference in Beijing on January 12.

The Shanghai and Shenzhen markets slumped by 25 percent and 34 percent respectively last year, making them one of the worst performing markets in the world, if not the worst.

“Such low valuation is unacceptable given the positive outlook for China’s economy in the medium to long term,” Fang said.

“Domestic investors dared not buy stocks while foreign investors were buying them like crazy” he said.

Last year, net foreign capital inflows into Chinese equities reached 300 billion yuan, and this year Fang expects the number to hit 600 billion yuan.

The reason, Fang noted, is that foreign investors usually have an investment horizon of three to five years or even longer.

To rejuvenate Chinese equities and domestic investors’ appetite for them, Fang is working on a few measures, including the removal of first day price gain limit for newly listed counters, and introduction of more futures instruments. The regulator also aims to bring in more long-term money into the market.

China will also further open up its securities market, allowing 100 percent foreign ownership of brokerage firms, fund companies as well as futures companies, according to Fang, in three years’ time.

Quite a few US, Japanese and European international players have expressed interest in setting up fully owned units in china, and the CSRC is highly supportive of the plans, the official elaborated.

Fang, meanwhile, dismissed concerns about the stock market getting out of control, like the way it behaved historically, arguing that the introduction of more mid- to long-term capital and additional risk management tools will address the problem.

Chinese investors have been skeptical of artificial efforts to prop up the market as similar scheme in 2015 led to a short-lived rally that ended in a slump.

This article appeared in the Hong Kong Economic Journal on Jan 14

Translation by Julie Zhu

[Chinese version 中文版]

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Hong Kong Economic Journal columnist