Main­tain­ing Stock Mar­ket Ex­pec­ta­tions To At­tract More Long-term Cap­i­tal

Beijing Review - - BUSINESS MARKET WATCH - This is an edited ex­cerpt of an ar­ti­cle writ­ten by fi­nan­cial com­men­ta­tor Wu Li­hua and pub­lished in Eco­nomic

To en­sure the sta­bil­ity of the fi­nan­cial mar­ket, es­pe­cially main­tain­ing the ex­pec­ta­tions of stock mar­ket in­vestors, will be the fo­cus of the cap­i­tal mar­ket for some time to come. Cur­rently, the Chi­nese Gov­ern­ment is show­ing a ten­dency to sup­port the A-share mar­ket, and in­vestors should be con­fi­dent about it.

On Oc­to­ber 19, Vice Pre­mier Liu He and lead­ers of China’s cen­tral bank, as well as se­cu­ri­ties and bank­ing su­per­vi­sory au­thor­i­ties all voiced sup­port for the A-share mar­ket, a move rarely seen in the past. Liu said China’s stock mar­ket is be­com­ing the best for in­vest­ment value, and the gov­ern­ment ap­pre­ci­ates its sound and steady de­vel­op­ment. Re­lated gov­ern­ment de­part­ments should be more re­spon­si­ble and is­sue spe­cific poli­cies as soon as pos­si­ble to pro­mote sound de­vel­op­ment of the stock mar­ket, he added.

On Oc­to­ber 20, the fi­nan­cial sta­bil­ity and de­vel­op­ment com­mit­tee un­der the State Coun­cil held a meet­ing put­ting forth that there should be de­tailed mea­sures as soon as pos­si­ble to im­ple­ment the poli­cies of sta­bi­liz­ing the cap­i­tal mar­ket, im­prov­ing the ba­sic mar­ket sys­tem, at­tract­ing long-term cap­i­tal to the cap­i­tal mar­ket, en­cour­ag­ing re­form of state-owned en­ter­prises (SOES) and the de­vel­op­ment of pri­vate en­ter­prises, and fur­ther­ing the open­ing up, which had been an­nounced the day be­fore.

The in­ten­sive level of gov­ern­ment at­ten­tion to manag­ing mar­ket ex­pec­ta­tions is rare in the his­tory of China’s A-share mar­ket. It will prove to be fa­vor­able for en­sur­ing mar­ket sta­bil­ity. This in­di­cates that on the one hand, the con­tin­ual stock mar­ket fall doesn’t rep­re­sent the real con­di­tions of the Chi­nese econ­omy; and on the other hand, en­sur­ing sta­bil­ity of the stock mar­ket and in­vestors’ ex­pec­ta­tions has be­come a fo­cus of fi­nan­cial su­per­vi­sory au­thor­i­ties. This shows that the worst times for China’s A- share mar­ket may have passed and mar­ket play­ers should rec­og­nize this.

In ad­di­tion, re­cent moves by top de­ci­sion-mak­ers in­di­cate that the gov­ern­ment is pay­ing close at­ten­tion to the dif­fi­cul­ties en­coun­tered by pri­vate busi­nesses and is ready to is­sue tar­geted mea­sures to solve their prob­lems. Sup­port­ing the de­vel­op­ment of pri­vate en­ter­prises is a con­sis­tent pol­icy of the Chi­nese Gov­ern­ment that will never change. In this sense all mar­ket play­ers should be con­fi­dent in the long-term de­vel­op­ment of China and its econ­omy.

At the macroe­co­nomic level, the pol­icy en­vi­ron­ment for the A-share mar­ket is chang­ing. A meet­ing of the Po­lit­i­cal Bureau of the Com­mu­nist Party of China Cen­tral Com­mit­tee on July 31 said that ef­forts will be made to sta­bi­lize em­ploy­ment, fi­nance, for­eign trade, for­eign in­vest­ment, the growth of in­vest­ment, and mar­ket ex­pec­ta­tions in the sec­ond half of the year. The cap­i­tal mar­ket is im­por­tant to China’s eco­nomic re­struc­tur­ing, play­ing an im­por­tant role in solv­ing the fi­nanc­ing dif­fi­cul­ties of pri­vate en­ter­prises, deep­en­ing SOE re­form through mar­ke­to­ri­ented re­or­ga­ni­za­tion and merg­ers and ac­qui­si­tions, serv­ing the real econ­omy, and guid­ing cap­i­tal to flow to the real econ­omy. En­sur­ing the sta­bil­ity of the fi­nan­cial mar­ket and manag­ing mar­ket ex­pec­ta­tions will be im­por­tant parts of the fi­nan­cial work for the fore­see­able fu­ture and key mea­sures to prevent and ad­dress fi­nan­cial risks.

With a gen­eral prin­ci­ple of seek­ing progress while main­tain­ing sta­bil­ity, the Chi­nese econ­omy has been grow­ing steadily with new growth im­pe­tus in­creas- ing rapidly. Ac­cord­ing to fig­ures from the Na­tional Bureau of Statis­tics, in the first three quar­ters, China’s GDP growth was 6.7 per­cent. In Septem­ber the regis­tered un­em­ploy­ment rate in ur­ban ar­eas was 4.9 per­cent, 0.1 per­cent­age point lower than the pre­vi­ous month and the same pe­riod last year; in the first three quar­ters, the con­sumer price in­dex rose by 2.1 per­cent, which was rel­a­tively mild; and per-capita dis­pos­able in­come grew by 6.6 per­cent in real terms. The econ­omy is now op­er­at­ing within a ra­tio­nal range and its long-term sta­ble and pro­gres­sive fun­da­men­tals will con­tinue. De­spite some un­fa­vor­able ex­ter­nal im­pacts, the qual­ity of China’s listed com­pa­nies has been im­prov­ing, and the A-share mar­ket has the ba­sis to re­sume growth while main­tain­ing sta­bil­ity in the long term.

As for mar­ket op­er­a­tions, at present the mon­e­tary pol­icy con­tin­ues to be pru­dent and neu­tral, and the liq­uid­ity in the fi­nan­cial mar­ket is at a rea­son­able and sta­ble level. Com­pared with for­eign mar­kets, the val­u­a­tion of China’s A-share mar­ket is at a record low, in­di­cat­ing great in­vest­ment value. Since the be­gin­ning of this year, a large amount of cap­i­tal has flowed into the A-share mar­ket via the Shang­haiHong Kong Stock Con­nect and Shen­zhenHong Kong Stock Con­nect, while qual­i­fied for­eign in­sti­tu­tional in­vestors are ex­pand­ing in­vest­ment in China’s stock mar­ket. With the in­flow of var­i­ous types of longterm cap­i­tal, the A-share mar­ket will see long-term sound de­vel­op­ment.

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