SCIO briefing on maintaining financial market stability during COVID-19 epidemic
0 Comment(s)
Print
E-mail SCIO, March 25, 2020
Nikkei:
I have two questions. The first question is while there are wild swings on the global stock market, China's stock market and the exchange rate of its currency are relatively stable? What do you think are the reasons? The question is there is the view that China's financial market will become a harbor of the world economy, could you comment on the recent influx of foreign capital into China's stock and bond markets? Thank you.
Li Chao:
Under economic globalization of our times, fluctuations on the global financial market inevitably impact the domestic financial market. This is normal. The direct impact may include: first, the impact on the psychology of investors, namely panic on the global market will have mental influence on domestic investors; and second, impact on capital flow. After momentum swings over a short period of time, A-share investors have calmed down, and are generally rational now. As far as capital flow is concerned, we will give some figures later. I can say that the impact on the A-share market as a whole is limited, and the volume is small.
I have touched on why our market has maintained relatively stable, strong risk-resistance and low fluctuations during this time in my earlier remarks. For instance, we made some arrangements in advance for supply-side structural reform of the financial sector, which have alleviated some of the risks and hidden dangers in our financial system, especially those on our capital market. Besides, the following two factors also helped:
First, the assessed value of the A-share market is low; the Price to Earnings (PE) ratio of the Shanghai Composite Index is below 12, and that of Shanghai 50 Index is even lower at under 9. This is low in comparison with both foreign markets and the records of the domestic stock market. Meanwhile, our market has plenty of liquidity. The risks of A-shares are therefore relatively low.
Second, in terms of the macro environment of the A-share market, the epidemic control in China is now at a different phase from that in other countries. The A-share market is gradually absorbing the impact of the coronavirus outbreak, and resumption of production is accelerating. We did a survey of more than 2,700 listed companies in the first half of March, which shows that 98 percent or more of them had restarted operations. People are concerned about how medium-sized and small enterprises are doing. The finding of our survey of this group is optimistic: more than 80 percent of their staff had returned to work. These are positive signals.
All in all, our economy has a sound foundation for recovery, and even quick recovery. The steep fluctuations on foreign markets do have an impact on the domestic market, but it is controllable, limited, and periodical.
Concerning the flow of foreign capital, our data show no conspicuous outflows on the bond market, and instead, a small volume of inflow. On the stock market, there has been a comparatively big and concentrated outflow over the past month. Since the start of this year the actual net outflow of foreign capital on the A-share market has reached approximately RMB 20 billion. But in the past years, especially 2019, a large sum of foreign capital had flooded into China's A-share market. In this context, the figure of the past month looks conspicuous. The recent outflow is in fact not big. What's more, at present foreign capital accounts for less than four percent of the market value in the circulation of China's A-share market, and their share in transactions on this market is also small. The impact of foreign capital flow on our A-share market is therefore not subversive or fundamental. Thank you.
Zhou Liang:
Vice Chairman Li Chao has said that domestic investors still dominate China's stock market, and foreign investment is only a small share of it. Direct financing accounts for a low percentage in China's financing structure, with indirect financing having the lion's share. The China Banking and Insurance Regulatory Commission will further carry out supply-side structural reform in the financial sector, and support the increase in direct financing. Two factors are important to the development of the capital market: the first is long-term stable source of capital, and the second is a large number of healthy institutional investors. Insurance companies are now the second largest long-term institutional investor on China's capital market, with the surplus of insurance capital utilization totaling RMB 18.8 trillion, of which about RMB 2 trillion, or 10.8 percent, is invested in stocks and funds.
The international financial market has experienced big swings recently, but the Chinese stock market has stayed stable in general. This is because of the strong fundamentals of the Chinese economy, as well as the great efforts made by the China Securities Regulatory Commission. China Banking and Insurance Regulatory Commission will also actively support insurance companies to make investment in accordance with laws, regulations, and market rules and be involved in long-term prudent value investing. In addition, the commission will deepen the reform for market-based use of insurance capital, and allow insurance companies greater autonomy under the principle of prudent regulation. For insurance companies with higher solvency margin ratio and good asset-liability matching, we allow them to increase the share of equity investment on the basis of the existing upper limit of 30 percent for such investment. This is of course preconditioned on good risk control. We will also increase, to a correct extent, the number of wealth management branch companies, establish old age pensions, and support direct financing, working for long-term sound, stable development of China's capital market.
Go to Forum >>0 Comment(s)