Maintaining Stock Market Expectations To Attract More Long-term Capital
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.