Regulator steps up fund approvals to cushion equity market decline

PUBLISHED : Wednesday, 12 August, 2009, 12:00am
UPDATED : Wednesday, 12 August, 2009, 12:00am

The China Securities Regulatory Commission is fast-tracking fund approvals to help cushion the recent rout in stocks, but worries remain about a bubble in the equity market, whose main index has jumped nearly 80 per cent this year.

The regulator allowed three asset managers to launch new funds over the weekend after a two-week hiatus, according to Shanghai Securities News.

The move came after the benchmark Shanghai Composite Index ended a seven-week winning streak as a bout of profit taking sent the gauge down 4.44 per cent last week.

As of yesterday, the indicator had soared 79.3 per cent this year.

'The fund approvals were obviously aimed at boosting the liquidity and preventing a sharp fall,' said Orient Securities analyst Mao Nan. 'Fresh fund supply is the only positive news for the frothy market since fundamentals can't support the current valuations.'

Shanghai-listed firms trade at an average of 28 times their 2008 earnings.

Mainland mutual fund houses raised a total of 46.3 billion yuan (HK$52.5 billion) in July, 18 per cent more than a month earlier, according to a report by Guosen Securities.

In early July, an index fund tracking the CSI 300 Index by China Asset Management raised its targeted 25 billion yuan in just four days.

The fund manager closed the fund-raising three weeks ahead of schedule.

The red-hot market forced the CSRC to suspend new fund approvals in the middle of last month to cool buying euphoria.

But the market slide last week called the regulator into action again as it was desperate to avoid a roller-coaster ride, analysts said.

According to a statement by the CSRC on Tuesday, the regulator approved a new qualified foreign institutional investor, Korean Investment Trust Management, last month, bringing the total number of QFIIs to 86.

A Shenyin Wanguo Securities report said yesterday that A shares have been overvalued as investors were overly optimistic about the economic recovery and better corporate earnings.

'The A-share market has reached a bubble territory,' said the report. 'Expectations of a bright earnings outlook won't be able to sustain the rally while investors are anticipating excessive liquidity.'

The market drop last week was sparked by speculation that the central bank would tighten monetary policy after commercial banks extended record loans in the first half this year.

Yesterday, the Shanghai index gained 14.966 points or 0.46 per cent to 3,264.726 points, snapping a four-day losing streak.

Turnover on the Shanghai Stock Exchange was 103.8 billion yuan, only half of last week's average daily trading value.