CSRC says state meddling stabilises China stock market
Investors speculate that regular state intervention has continued even after the 2015 market rout that wiped off US$5 trillion in market value was over, with the most recent prominent case in January this year
State intervention has successfully stabilised China’s US$7 trillion stock market by curbing volatility and steering valuations to rational levels, according to the nation’s securities regulator.
In a rare move to comment on the market performance, the China Securities Regulatory Commission said in a statement on its website on Tuesday that the gauges tracking the nation’s big-cap blue-chip stocks beat the world’s other major benchmarks such as the Dow Jones Industrial Average and UK’s FTSE 100 Index in the first seven months of the year. In spite of the outperformance, the valuations were still lower than the global peers, it said.
Within the 140 trading days in the period, the benchmark Shanghai Composite Index had not closed up or down by more than 2 per cent and registered only eight days with daily movement exceeding 1 per cent, the CSRC said in the statement.
The regulator mainly attributed the tame market performance to state-linked funds, which were created during the equity crash in 2015 to shore up stocks, and said maintaining market stability was the pre-condition for carrying out reforms.
“The CSRC has put the prevention against financial risks at a more important position and taken a series of strong measures to rid any potential risks in collaboration with relevant departments,’’ the regulator said in the statement.
Even after the market rout that almost erased US$5 trillion in market value in 2015 was over, the state funds, or dubbed by investors as the national team, are suspected of frequently meddling in the market. The most prominent case this year was January 16, when the Shanghai
Composite almost recouped an intraday loss of as much as 2.2 per cent in the last 30 minutes of trading to end the day only 0.3 per cent lower.
The state-linked funds, mainly operated by China Securities Finance and Central Huijin investment, are estimated to hold stocks worth about 1 trillion yuan (US$150 billion) now, according to fund tracker Howbuy.
While state intervention has reduced price swings in arguably the world’s most volatile emerging stock market, it has also come at a cost of waning trading activities among retail investors, who make up 80 per cent of transactions. The number of new investors is growing at the slowest pace in almost two years, and turnovers remain down 80 per cent from the all-time high.
The 100-day volatility on the Shanghai Composite fell to a record low of 8.6 in May and it currently stands at 9.3, according to data compiled by Bloomberg.
China’s CSI 300 Index of the nation’s 300 most valuable companies climbed 13 per cent in the January-to-July period, outpacing Dow Jones Industrial’s 11 per cent gain and FTSE 100 ’s 3.2 per cent advance.
The CSI 300 is valued at 16.2 times reported earnings, compared with the multiple of 18.8 times for the Dow Jones Industrial and 25.5 for the FTSE 100, Bloomberg data showed.