Regulator boldly flies blue-chips flag

PUBLISHED : Monday, 20 February, 2012, 12:00am
UPDATED : Monday, 20 February, 2012, 12:00am


When Guo Shuqing talks, the markets listen.

In an apparent effort to set off a flurry of A-share buying, the China Securities Regulatory Commission chairman promised an annualised 8 per cent return if investors snapped up the mainland's blue chips.

Addressing a government conference last week, Guo, widely viewed as an open-minded reformist on the country's financial system, acted like a broker, calling investors to boldly buy into the country's biggest listed firms, describing the stocks as good buys amid the present low prices.

'Our listed companies have a larger potential compared to those in the developed nations and regions,' he said, according to the commission's website. '[These] investment opportunities are rarely seen.'

The largest 300 stocks listed on the Shanghai and Shenzhen stock exchanges traded at 13 times their 2011 earnings and 11.2 times their forecast earnings for this year, he said. Based on a fair valuation of the blue-chip stocks, investors would book an 8 per cent gain this year if they bought the shares now, Guo said.

His remarks add to evidence that the securities regulator is tasked with boosting stock prices rather than policing the arcane equity markets.

The mainland has about 100 million retail investors and many hoped that with his appointment as commission chairman the reform-minded banker would become their white knight, riding to the rescue of the slumping market.

The benchmark index lost 14.3 per cent in 2010 before diving another 21.7 per cent last year, one of the world's worst-performing indicators.

Since taking office, Guo has urged listed firms to increase cash dividends to bolster investor confidence and had begun overhauling the controversial initial public offering mechanism to avoid an equity influx.

'He appeared eager to do something to benefit investors,' a Shanghai-based fund manager said.

'As a promising minister-level official, he is probably setting his eyes on higher positions after his commission tenure and that's why he took a different approach to his predecessors and boldly talked up the market in a blunt manner.'

Last week the Shanghai-based China Financial Futures Exchange announced the start of simulated trading of government bond futures, just one month after Guo unveiled plans to relaunch the derivative following a 17-year hiatus on the mainland.

Top policymakers have been battered by worries of runaway investment in bond futures since a scandal in 1995 caused the government to halt trading in the sector.

Analysts said Guo was sending a message to the market that he was a no-nonsense regulator who could successfully fine-tune the market system to better safeguard the interests of investors.

Small investors welcome Guo's comments on the market, believing that he could roll out more substantial incentives to bolster the 'undervalued' stocks.

Guo is among the strong advocates of introducing more equity purchases by the mainland's underfunded pension funds. He has suggested that Beijing allow provincial-level pension funds to invest in stocks, in a move that could direct 580 billion yuan (HK$711 billion) of fresh capital to the troubled stock market.