China's ongoing securities reform spurred better performances by domestic listed companies and sound interim results are expected to further lift investor confidence in the A-share market, analysts said.

 

The securities reform of the capital market was launched in May 2005 and required listed companies to gradually convert original non-tradable State-owned shares to tradable ones, pushing many companies to restructure.

 

By the end of August, 1,388 domestic listed companies of the total 1,392 had released interim reports, more than forecast by most investors.

 

Those 1,388 companies reported a combined 127.8 billion yuan (US$15.98 billion) in net profit for the first half of the year, up 7.54 percent year-on-year.

 

The combined revenue of those companies hit 2.4 trillion yuan (US$300 billion), an increase of 18.37 percent compared to the same period of 2005, according to Shanghai-based Wind Statistics.

 

Business in the life insurance, industrials, toll roads and aluminium sectors saw an upward swing, while property and casualty insurance and coal players reported major earnings disappointments.

 

Analysts pointed out that the successful securities reform is now starting to take effect to enhance companies' performance and corporate governance.

 

"The asset quality and profit-making ability of those companies who finished the securities reform have seen an obvious increase," said Zhou Feng, an analyst with Shanghai-based Shenyin Wanguo Securities.

 

By August, 1,144 listed companies, 90 percent of the overall domestic listed firms, had finished or begun their securities reforms.

 

Meanwhile Chinese companies' profits have been rising at a steady pace this year, contributing to the sound interim results of most listed companies.

 

A recent report by JP Morgan shows that the aggregate profits of the country's major industrial enterprises rose 28.6 percent during the first seven months of 2006 compared to the same period last year, including a 34.3-per-cent growth in July alone. It predicted a stabilizing corporate profit trend in the following months.

 

Chinese equities maintained their current trading level during the August earnings season on the back of strong interim results.

 

"We believe the A-share rally in the first half year of 2006 was just the beginning of a multi-year re-rating of China's A-share market, powered by five forces: successful non-tradable share reform, enhanced corporate governance, a diversified investor base, higher quality upcoming IPOs, and healthy earnings-per-share growth," the report said.

 

Anticipation of further tightening measures on the fast-growing economy, especially in the property market, and a slew of new IPOs are expected to have a negative impact on the A-shares market.

 

But analysts believe it will rebound in the fourth season.

 

Wei Daoke, another analyst with Shenyin Wanguo Securities, said the third-quarter would be the weakest period, but that there would be investment opportunities in the second half of the year.

 

(China Daily September 5, 2006)