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Investors check stock prices at a securities company in Fuyang, Anhui province. [LU QIJIAN/FOR CHINA DAILY]
Market support measures like the Stabilization Fund, which many investors are counting on, will not only inject liquidity into the currently depressed A shares, but also boost overall sentiment, which is crucial for the time being. industry insiders and experts said.
Chinese authorities have collected around 2 trillion yuan ($278 billion) from offshore accounts, mainly Chinese state-owned enterprises, as part of a stabilization fund to buy A-shares through the Stock Connect program linking stock exchanges in Shanghai, Shenzhen and Hong Kong. ) is trying to mobilize. , Bloomberg reported on Tuesday, citing people familiar with the matter.
The Bloomberg report came a day after Premier Li Qiang announced at Monday’s State Council Executive Meeting that the country would roll out further measures to stabilize the stock market and bring in more long-term capital.
Policymakers have yet to comment on the widely anticipated buffer fund, but the benchmark Shanghai Composite Index rose 1.8% on Wednesday, regaining a psychological level of 2,800 points. Meanwhile, the Shenzhen Component Index rose 1%, and the tech-heavy Shenzhen ChiNext closed 0.51% higher.
Yan Delong, chief economist at First Seafront Fund, said the A-share market needs strong policies and large-scale capital inflows at this time, as the downtrend has already been established. If the index falls significantly, some leveraged capital would be forced to liquidate their positions, making the recession even worse.
“Therefore, real money is very important now to reverse the trend and restore investor confidence,” Yang said.
Yang Haiping, a researcher at the Securities Futures Research Institute of the Central University of Finance and Economics, agreed with the view that the introduction of a stabilization fund is necessary in the current situation where market sentiment has become excessively pessimistic.
The US Federal Reserve is likely to keep interest rates high for longer than expected, but China will continue to do more to stabilize economic growth, further lower funding costs, and prepare for any external threat. Despite China’s efforts to improve its economy, capital outflow pressure may continue in China. financial stress. Yang said the stabilization fund will help resolve these issues.
Meanwhile, deepening reforms underway in China’s capital markets include tightening enforcement against violations of rules and regulations and protecting the rights of retail investors. The Stabilization Fund will play a role in safeguarding these reforms, he added.
James Wang, head of China strategy at UBS Investment Bank Research, said that investor sentiment for A-shares is weak and that market liquidity, rather than China’s economic fundamentals, is the main factor influencing market performance. He said some people are concerned that this could happen. The anticipated stabilization fund could provide a burst of confidence that is now desperately needed.
However, Wang said it should be noted that an improvement in stock prices may not occur immediately after the introduction of the stabilization fund, following the example of government support provided to the A-share market in 2015.
Analysts at Dongshu Securities explained that stabilization funds have been used in mature markets such as the United States and Japan when stock markets have slumped. However, for these funds to be effective, certain criteria must be met, such as significant declines in stock prices, irrational capital outflows, unsatisfactory results from other economic stimulus measures, and stagnant trading volume levels. It requires the right conditions, conditions, and the right timing.
The benchmark SCI has fallen nearly 5% since the beginning of the year.
However, Dongshu Securities also emphasized that the stabilization fund will only serve as a transitional instrument. If used for too long, results will be less than optimal, they said.
Bloomberg also reported on Tuesday that the state-owned China Securities Finance Corporation, or Central Huijin Investment, a unit of China’s sovereign wealth fund, may directly purchase more than 300 billion yuan of A-shares.
Wang Jianjun, vice chairman of the China Securities Regulatory Commission, said in a news report released Wednesday that regulators have noticed the recent high volatility in the A-share market. In order to better protect investors’ rights and interests, further efforts will be made to perfect the market mechanism, improve the quality of public enterprises, and balance investment and financing.
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