Investors brace for bullish market
National institutions and qualified foreign institutional investors are preparing for a possible bull market in China, following an official announcement that initial public offerings, halted since October 2012, would resume.
The State Administration of Foreign Exchange said it had approved an investment quota of $49.2 billion under the QFII plan by the end of November, of which $ 738 million was approved last month.
Block trade platform data show that QFII became more active in recent months, spending 2.17 billion yuan ($354.6 million) to buy up 247 million bank shares in early December, Securities Daily said on Friday.
Meanwhile, the new renminbi quota for qualified foreign institutional investors stood at 5 billion yuan in November, bringing the total investment quota for RQFII (RMB qualified foreign institutional investors) to 144.6 billion yuan, SAFE data showed.
“The new listings after a 14- month hiatus broke the ice,” said Zito Ji, a public fund analyst in Shanghai.
“The reform plan the regulator introduced will benefit the long-term stability of China’s equity market,” Zito said. “There seems to be less risk now that the index will drop.”
The China Securities Regulatory Commission announced an IPO reform plan earlier this month and said about 50 companies will be ready for IPOs by the end of January.
Currently, 760 companies have lined up for IPOs in China.
Meanwhile, the CSRC issued guidelines saying it will push forward a registration-based initial public offering system, meaning that after companies meet certain legal and financial requirements, the market will decide their IPOs’ prices.
“The market has been hungry, with no supply of new listings, for quite a long time,” said Vivien Wei, an underwriter in Guangzhou.
“Now that the new listings are about to come out with a set of reform policies, it is likely that big funds will raise stakes in the stock market, especially blue chips,” she said.
Meanwhile, with the regulator introducing preferred shares, social security insurance or public pension funds will have more choices for investing, she added.
Compared with common stock, shares of preferred stock take priority in the distribution of corporate profits and upon liquidation, but as defined by the guidelines issued by the State Council, shareholders of such stocks have limited rights in corporate decision-making,
China is about to let some big banks buy preferred shares on a trial basis first, media reports said.
Analysts said the preferred shares — which are similar to bonds, offering a smoother and more predictable investment ride, with lower returns but lower risks — are better investment choices for social security funds.
Third- quarter financial reports of the listed companies show edthat China’s social security fund has increased its stakes in the stock market. The fund has increased its investments in the equity market for the past five quarters.
The assets of China’s National Council for Social Security Fund ended 2012 at 1.11 trillion yuan, up 27.5 percent from the previous year. The fund enjoyed an investment return of 7 percent, or 64.5 billion yuan, for the year.