MNI: China Must Address Investor Concerns To Boost A-shares

Chinese authorities should prioritise legal investor protections and increase information access to retail investors among other reforms to improve the A-share market and stabalise economic growth, advisors and analysts told MNI, following recent moves to stimulate China's equity market.

Authorities on Sunday introduced a range of reforms, including a 50% reduction to the 0.1% stamp duty on securities transactions, the temporary tightening of IPOs and the lowering of margin requirements. The moves followed the Politburo’s commitment at its July meeting to rejuvenate the capital market. The Shanghai Composite Index finished Tuesday 1.20% higher at 3,135.89.

Policymakers, however, should not avoid investor concerns, said Liu Feng, director at the China Chief Economist Forum, who formerly served as a chief economist in China Galaxy Securities. The stamp duty cut was negligible and would not likely encourage further trade volume from investors already active in the market, he added.

Law should dictate investor protection, not government guidance or documents, he added, noting healthier corporate governance and more transparency were needed to protect investors. A-share liquidity remains low because sovereign funds and corporate shareholders – often state-owned – dominate the market and they seldom trade, while retail investors struggle with access to information about major shareholders and those managing listed SOEs, which account for more than half of the market, Liu Feng continued.

Mergers, acquisitions or private placements should also occur on the market to boost transparency and price discovery, while listed SOEs should have special privileges removed, he added.

Liu Feng called on the government to meet its repeated vows to support the private economy with concrete actions to placate investors. Macro policies should also address property debt risks, weak consumption, unemployment and emphasise coherence, persistence, and predictability to help form clear expectations and restore investor confidence, Liu Feng noted. (See: MNI:China Seen Boosting Property Market, Not Bailing Out Firms)

LONG-TERM INVESTMENT

Liu Ying, research fellow at Chongyang Institute for Financial Studies noted listed companies lack a stable dividend mechanism, which encourages short-term speculation instead of long-term value investment.

The varied quality of listed companies also hinders long-term investment arrangements and the delisting rules need further development, particularly following the launch of the registration-based IPO system this year, which has made market access easier, said Zhao Xijun, co-president at the Chinese Academy of Financial Inclusion at Renmin University of China.

Small- and mid-sized investors with a portfolio below CNY500,000 account for 96% of total equity investors, while shareholdings by institutional investors account for less than 6%, below the typical 20% or more level found in mature markets. Authorities should allow social security, pension and annuity funds to make a wider range of investments in stocks, bonds and derivatives, and invest in a broader scope of industries and companies as well as in different trading boards, Liu Ying added.