More must be done to allay concerns among foreign investors about A- share market

A key issue with China’s capital market reform is that the country needs to bring more stability to the market, as this will help to attract foreign investment.

In fairness, the market regulator has been trying to address some of the key concerns facing outside investors and has made good progress. But that is not yet enough. Unlike the US, the Chinese equity market is mostly composed of a multitude of individual retail investors, and the proportion of institutional investors is much lower. So there is a perception that investing in China’s A shares can be a bit of a gamble.

One of the key concerns right now is that more needs to be done to address stability in the equity market, and this should be the key focus for the regulator. There should perhaps be private sessions in which investors can talk to the regulatory authorities about some of the areas that most impact their ability to make investments within China. Also, there needs to be more transparency for there to be more confidence among overseas investors that their investment will be safe.

It has been suggested that these reforms could happen more quickly. Understandably, the view from within China has always been that the country should take a slow and measured pace. Nevertheless, for overseas investors who are eager to enter the Chinese market, they have expectations that the pace of reforms could be accelerated, and this might help to attract their investment more quickly. The recent decision by US index provider MSCI to include China’s A shares in its Emerging Markets Index will automatically draw in an influx of money to the Chinese market. It will also place increased pressure on the Chinese authorities to increase their performance in terms of instituting reforms.

Having said that, one of the governance issues is that the market regulator perhaps has excessive influence on the market, which can be seen in its criticism of specific investors, and this can have a chilling effect on the market. The regulator’s job should be to make sure that the markets are running efficiently and to let investors do their part by investing in the areas they choose.

The article was compiled by Global Times reporter Li Qiaoyi based on an exclusive interview with Han Yik, head of Institutional Investors at the World Economic Forum ( WEF), last week during the WEF “Summer Davos” forum in Dalian. bizopinion@ globaltimes. com. cn