Pep talk fails to reassure investors

PUBLISHED : Tuesday, 24 July, 2012, 12:00am
UPDATED : Tuesday, 24 July, 2012, 12:00am


Mainland investors rejected a pep talk last week from the chief securities regulator, sending the benchmark to a three-year low yesterday as concerns about the country's economy mounted.

In his latest effort to bail out the beleaguered market, China Securities Regulatory Commission (CSRC) chairman Guo Shuqing told a working conference on Friday that listed companies would be urged to increase cash dividends to investors to help bolster confidence.

But the benchmark indicator dropped 1.26 per cent yesterday, the lowest close since March, 2009, despite official newspapers giving Guo's positive remarks front-page treatment.

Hundreds of mainland equity investors also went online to criticise Guo for not protecting their interests.

Z-Ben Advisors research head Howhow Zhang said: '[Guo] might not have enough power to force the state-owned powerhouses to follow his advice ... Investors need not only a strong-minded reformist, but also an official who can enforce.'

Guo, a former China Construction Bank chairman and chief of the State Administration of Foreign Exchange, has ministerial rank, putting him on official par with dozens of top bosses at central government-owned enterprises.

But a CSRC chairman has no say in the operations of state-owned companies and whether they should increase returns to investors.

The Shanghai Composite Index is among the world's worst-performing indicators in the past two years. It ended at 2,141.4 points yesterday, 2.6 per cent off last year's close.

Pessimistic forecasts about the mainland economy and corporate earnings by listed firms exacerbated the bearish sentiment as skittish investors rushed to cash out on expectations of a further decline.

Song Guoqing, an adviser to the central bank's monetary policy committee, predicted on Saturday that the economy would slow to 7.4 per cent this quarter, down from 7.6 per cent in the three months ended on June 30.

The official Securities Times found that more than half of the 760 listed companies that published forecasts for their first-half earnings announced that profits between January and June would have dropped from the previous year.

'Even the incentives won't be enough to shore up market confidence,' Shenyin Wanguo Securities analyst Li Xiaoxuan said.

'Worries on worse-than-expected interim earnings are overshadowing the market.'

Last Friday, the CSRC said it would cut fees imposed on brokerages by a further 20 per cent from September 1, following a 25 per cent reduction last month, a move to encourage equity purchases.

Analysts said the policy would have minimal impact on stopping a market slide.

The yuan hit the 1 per cent daily trading band on Friday, weakening to as low as 6.3743 to the US dollar a few minutes before the market close.

'It was a sign that all the mainland-based assets including equities were depreciating due to a bearish outlook on the economy,' Gu Weiyong, chief investment officer with Ucon Investment Management, said. 'The worst has yet to come for the economy.'