TOP 10 EVENTS THAT MOVEDMOVES THE STOCKS
On Dec 9, the State Council passed a draft document proposing a registration-based stock listing system, which will likely replace the current approval-based system within two years.
Analysts said the proposal, if ratified by the top legislature, would become one of the biggest reforms ever in China’s stock market. It would further liberalize the IPO market, giving more say to the market in terms of timing of newshare listings and their pricing.
Under the existing IPO system, newshares are subject to theChina Securities Regulatory Commission’s approval. After the reform, the new IPO system will be based on registration, highlighting information disclosure. It would let the market play a bigger role in pricing.
Regulators said the shift will be stable. Market insiders said that under the registration-based system, more professional expertise would be required in valuation process, thus pushing up demand for institutional investment services. That would encourage more rational buy-and-hold market strategies. In the long run, the reform will help China’s stock market to become more transparent and healthy, said analysts.
On December 1, the International Monetary Fund announced that Chinese currency yuan renminbi will be included in its Special Drawing Rights basket, with a weighting of 10.9 percent. That put the renminbi ahead of the yen (8.3 percent) and the pound sterling (8.1 percent). Analysts said the stock market would benefit from this inclusion as it boosts investors’ confidence inChina. The yuan is anticipated to stay strong and support the equity and bond markets, although the effect of inclusion in the SDR basket may take time to manifest. The SDR inclusion may also help push the A-share market into the MSCI EmergingMarkets Index, which will bring more liquidity into the Chinese equity market. Corporate entities and countries with significant business with China will increasingly retain reserves in the yuan as trade settled in the currency continues to increase. Authorities inChina are likely to respond by further increasing international investors’ access to the domestic market.
On August 24, Chinese stocks plunged by more than 8.5 percent, the biggest one-day percentage loss since 2007. The decline offset market gains madesince the beginning of 2015 with more than 1,000 shares losing 10 percent, the daily limit. From June 15 to August 26, the benchmark Shanghai Composite Index lost some 45 percent. The rout wiped out some $5 trillion in market value.
Analysts said the A-share market volatility was a result of many factors, including irrational speculation in the first fewmonths of 2015, which pushed up share prices much higher than companies’ performance and macro economic growth would warrant.
That weakened market confidence amid sluggish economic growth, and caused illegal practices such as insider trading and malicious short-selling. Authorities investigated related issues during the entire summer of 2015, making efforts to reform the market into a more transparent and effective one.
Regulators launched a series of measures to boost market confidence in the long run, enabling investors to trade in a safer environment.