China’s securities regulator pledges action to shore up region’s worst-performing stock market, says rout is an ‘overreaction’

Measures include encouraging more tech companies to go public and adding more stocks to the exchange link with Hong Kong
Vice-chairman of the China Securities Regulatory Commission seeks to soothe shattered nerves of investors in interview with Xinhua

China stock market

Zhang Shidongin Shanghai

Published: 12:59pm, 11 May, 2022

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China’s securities watchdog has joined a chorus of voices attempting to soothe the frayed nerves of investors, pledging a variety of measures to shore up confidence in the region’s worst-performing stock market.

The nation’s continuing economic recovery together with the resumption of logistic and supply chains will outweigh a confluence of headwinds including the pandemic and the tightening of monetary policy in the US, said Wang Jianjun, vice-chairman of the China Securities Regulatory Commission (CSRC), in an interview with the Xinhua News Agency on Tuesday. The article, published in a question and answer format, was uploaded to the CSRC website.

He described the sell-off that has wiped billions off the value of Chinese equities as an “overreaction” to negative headlines.

Wang’s reassuring words helped push mainland China’s benchmark stock index higher on Wednesday. The Shanghai Composite Index finished the day 0.8 per cent higher, completing a third straight day of gains.

The CSRC said it will roll out of a raft of measures to stabilise the market. These will include encouraging more technology platform companies to go public either domestically or overseas, increasing the participation of institutional investors and expanding the investible universe of the exchange link with Hong Kong, according to Wang.

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“The impact of all these risks on the A-share market is controllable,” he said. “The size of margin trading is limited … and the mutual-fund industry has still seen net subscription rather than redemption. We believe that the short-term market swing will not change the uptrend of the capital market.”

The effort by the regulator to talk up stocks followed a pledge in March by Vice-Premier Liu He to stabilise growth and equities. Liu’s words, however, were not enough to prop up stocks, and investors were disappointed by the lack of follow-up measures.

To make things worse, Shanghai was placed under lockdown, triggering the suspension of work at Tesla’s local factories and electronic plants in neighbouring Jiangsu province.

While stocks have rebounded after an April 29 Politburo meeting that stressed the need for balance between growth and pandemic containment, the momentum risks faltering after President Xi Jinping last week struck a surprisingly hardline tone when defending the nation’s zero-Covid policy.

The Shanghai Composite remains 6 per cent above a two-year low set on April 26. Still, it is the worst performer in Asia this year with a 16 per cent decline.

Wang also highlighted the attractive valuations of China’s stocks in the Xinhua interview. The declines boosted the dividend ratio of the CSI 300 Index of the biggest onshore listed companies to 2.8 per cent, matching the yield on China’s 10-year government bond, he said.

China will broaden the investment scope of the cross-border Stock Connect mechanism by including exchange-traded funds, and enact new regulations that will support Chinese companies’ listings in the US, Hong Kong and Europe, he said.

The CSRC will also reduce the burden on publicly traded companies by cutting their annual listing fees, and allow them to conduct refinancing and mergers and acquisitions to overcome the impact of the pandemic.