Brighter outlook for China’s stock market amid faster market reforms, policy easing, say HFT and HSBC Jintrust

Things are looking up for Chinese stocks in the third quarter, as policies get more accommodative and regulators make it easier for fast-growing technology companies to float their shares, according to two Shanghai-based fund management firms.

HFT Investment Management said a drop in capital costs and a truce in the China-US trade conflict are set to boost risk appetite among investors. HSBC Jintrust Fund Management said in its third-quarter strategy report that it would raise its holdings of stocks because a decline in the benchmark since April had priced in the pessimism about a slowdown in the economy and the trade war.

A new rule unveiled by the securities watchdog last month which for the first time allowed back-door listings of technology companies on the ChiNext market, a board for start-ups, would raise hopes of more market reforms, HFT Investment said.

The Shanghai Composite Index had climbed by as much as 31 per cent this year to a peak in mid-April, before falling back almost 8 per cent. The decline was sparked by a sudden deterioration in the trade spat, a cutback in stimulus policies and the state takeover of a commercial bank deemed to be a credit risk. The gauge dropped 0.9 per cent to 3,015.26 at the close on Wednesday.

“There’s more of an upside risk in the market than a downside risk,” said HSBC Jintrust in the report. “As the Federal Reserve is leading global central banks with a dovish tone, that has made room for loose monetary policies in China.”

Policy easing is already under way in the financial system. The People’s Bank of China has increased loans to smaller banks through a medium-term lending facility and raised the quotas on the short-term financing bills big brokerages can sell. The moves were aimed at alleviating a liquidity squeeze which began when the regulator took control of Baoshang Bank because of its severe “credit risk”.