In­vestors need to know more, and well in ad­vance

China Daily (Canada) - - FRONT PAGE - By CHEN JIA

Early in­for­ma­tion has al­ways been the in­vestors’ most pow­er­ful weapon in mon­i­tor­ing stock mar­kets. And clear sig­nals from the pol­i­cy­mak­ers them­selves have re­mained among the most im­por­tant ways of find­ing out ex­actly what they need to know, es­pe­cially dur­ing un­pre­dictable tur­bu­lence.

But do rule-mak­ers have an obli­ga­tion to tell peo­ple what they are think­ing, even be­fore they an­nounce a pol­icy?

Around mid­night on July 1, nearly three weeks af­ter the bench­mark stock in­dex plunged more than 20 per­cent from a seven-year high of 5,178.19 points on June 12, a busi­ness news re­porter I know posted a pic­ture to a chat room on WeChat, which showed that the head­of­fice build­ing of the Peo­ple’s Bank of China, in Bei­jing’s Fux­ing­men area, still had many lights on.

That day trad­ing had been tur­bu­lent. Some had been sug­gest­ing a group of short sellers had been plot­ting to de­stroy the mar­ket, while oth­ers spec­u­lated the fi­nan­cial reg­u­la­tors were set to launch mea­sures to curb the tur­moil.

De­spite count­less phone calls and e-mails to the bank’s press of­fice, of­fi­cials re­mained silent, as public con­cern grew.

“The PBOC re­fused to say any­thing on what it might be do­ing to save the mar­ket, so we thought we would go down there and see whether any­one was work­ing late at the cen­tral bank,” the col­league from another news media or­ga­ni­za­tion told me.

“It was cer­tainly un­usual to see so many lights on that late, so I guessed of­fi­cials were work­ing on a res­cue plan.”

It was another week un­til a se­ries of poli­cies fi­nally came to light, tar­geted at lift­ing stock prices— but of course, the mar­ket hadn’t waited.

By then, panic had set in, the in­dex had dropped sharply to a four-month low of 3,373.54 points, and nearly $3.5 tril­lion of value had been wiped out in less than a month.

With­out a ma­ture in­for­ma­tion sys­tem in place, it is hard to man­age any mar­ket’s ex­pec­ta­tions or fears. Ru­mors quickly turned into knee-jerk re­ac­tions, and in a mar­ket so dom­i­nated by small-scale in­vestors, such as China, the public of­ten choose to be­lieve the most scary.

Even a cut in in­ter­est rates by 25 ba­sis points and a re­duc­tion in the cash amounts that banks must have in re­serve by 50 ba­sis points, on June 27, had failed to boost mar­ket sen­ti­ment or curb fears.

The cuts made that Satur­day evening came com­pletely out of the blue.

I, like many, was hav­ing din­ner withmy fam­ily, so even then, in­for­ma­tion on the mea­sures aimed at calm­ing the mar­ket were not ef­fec­tively passed onto the public.

Af­ter the 2008 fi­nan­cial cri­sis, the United States Fed­eral Re­serve ac­cepted that “For­ward Guid­ance” should be­come an im­por­tant part of mon­e­tary pol­icy — a tool to man­age mar­ket ex­pec­ta­tion through public com­mu­ni­ca­tion.

Un­der the frame­work, the US cen­tral bank now needs to give the public am­ple no­tice of any plans to change the tone of mon­e­tary pol­icy.

The Fed holds meet­ings to dis­cuss fu­ture pol­icy trends al­most ev­ery month, and also gives its pre­dic­tions on eco­nomic growth, in­fla­tion and un­em­ploy­ment.

The cen­tral bank sends out the guid­ance when it’s ready. It re­quires ac­cu­rate eco­nomic pre­dic­tions made by a pro­fes­sional re­search team, and most im­por­tantly, it has an in­de­pen­dent Mon­e­tary Pol­icy Com­mit­tee to make fi­nal de­ci­sions. The public get to know of any ma­jor in­for­ma­tion at a news con­fer­ence af­ter each meet­ing.

Even if you spend 24 hours a day, seven days a week on so­cial net­work­ing sites, or mon­i­tor any of the count­less media out­lets cov­er­ing the mar­kets in China, you can never be fully con­fi­dent of notic­ing ev­ery move­ment — but surely it is the duty of the rule-mak­ers them­selves, to give peo­ple the in­for­ma­tion they need to know, so they can ei­ther re­act, or be re­as­sured. Con­tact the writer at chen­jia1@chi­nadaily.com.cn

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