Home 2021 Changes to China Stocks

— The Chinese stock market kicked off the first trading day of the Year of the Ox with widespread gains.

— As China steps up capital market reforms, Chinese stocks and bonds will become increasingly attractive to both domestic and international investors.

— China’s financial opening up is running at full tilt despite the changing international environment and coronavirus-induced shocks.

The Chinese stock market kicked off the first trading day of the Year of the Ox with widespread gains, as the country’s ongoing capital market reforms added to investor confidence.

The benchmark Shanghai Composite Index opened 1.81 percent higher while the Shenzhen Component Index jumped 1.97 percent at opening.

The ChiNext Index, tracking China’s NASDAQ-style board of growth enterprises, was up 1.82 percent to open at 3,475.89 points Thursday.

As the country steps up capital market reforms, Chinese stocks and bonds will become increasingly attractive to both domestic and international investors, analysts say.

MARKET REFORM

The Year of the Ox by the Chinese lunar calendar is likely to see accelerated capital market reforms. One major change is the way that companies are listed and delisted.

Prior to 2019, initial public offerings (IPO) were run under an approval-based mechanism, in which securities regulators decided in large part the pricing and offering scale of companies prior to listings.

Meanwhile, it was rare for companies to be delisted once they completed the process of going public, creating many so-called “zombie companies” that would drag down the overall quality of the capital market.

To tackle such inefficiencies, China stepped up efforts to push the registration-based IPO reform in the past few years, allowing the market to play a bigger role in deciding the pricing and value of innovative firms.

The reform was first launched at the Shanghai Stock Exchange’s sci-tech innovation board in 2019 and expanded to the ChiNext board in 2020, while a registration-based issuance mechanism was also introduced in the country’s corporate bond market in March last year.

Building on these efforts, the country will further improve the matching rules for the registration-based IPO mechanism and create favorable conditions for the mechanism to be implemented on all boards, the China Securities Regulatory Commission said during a work conference outlining the key tasks for 2021.

As China expands the reform to the whole A-share market, the number of IPOs will increase with greater efficiency, said Dong Dengxin, director of the Institute of Finance and Securities at Wuhan University of Science and Technology.

CITIC Securities predicted that the registration-based IPO mechanism will be utilized in the country’s main board in the first half of 2021, cutting the average approval time to about 60 days from 490 days previously.

However, the streamlined procedures do not mean relaxed regulatory oversight, Dong said, citing intensified on-site inspections by regulators this year to crack down on illegal conduct.

To enhance the quality of public firms, the country also revised delisting rules in December last year, clarifying conditions that would trigger the forced exit of firms.

Such reforms would further boost the investment value of the A-share market and make it more attractive to foreign investors, analysts say.

GREATER APPEAL

China’s capital market is gaining international appeal as the country’s financial opening up is running at full tilt despite the changing international environment and coronavirus-induced shocks.

As part of the opening-up measures, the country lifted quota restrictions on two major inbound investment schemes in June last year and allowed institutional investors broader investment scope with revised rules introduced in September, which have guided more foreign investment into China’s financial market.

Net inflows of funds through “northbound trading,” or money invested from Hong Kong into the Chinese mainland through the stock connect programs, exceeded 200 billion yuan (around 31 billion U.S. dollars) last year.

China’s stock market managed to secure spectacular gains while foreign investors are keen to capture a share of that growth. The benchmark Shanghai Composite Index gained 13.87 percent in 2020, while the ChiNext Index, tracking China’s NASDAQ-style board of growth enterprises, surged nearly 65 percent.

In addition, China’s bond market saw net inflows of overseas funds totaling 186.1 billion U.S. dollars in 2020, indicating overseas investors’ bullish sentiment toward China’s securities market.

With opening up on the fast track, China’s stocks and bonds have been included in main global indexes, such as the MSCI, FTSE Russell, S&P Dow Jones and Bloomberg Barclays index, and their weights are steadily increasing.

In 2020, the country also showed its receptivity to foreign financial institutions by removing limits on foreign ownership of futures, securities and mutual fund management, which has inspired such institutions to set up wholly owned subsidiaries and better tap the Chinese market.

“One hundred percent ownership of our franchise on the mainland represents a significant commitment to and investment in China,” Goldman Sachs said in a memo. It pointed to “ongoing reforms underway in China’s capital markets, continued robust economic growth and the expanding needs of increasingly sophisticated clients.”

While China’s GDP accounts for some 16 percent of the world’s total, Chinese assets only account for some 3 percent to 5 percent of the portfolios of overseas institutional investors, indicating great potential for global investors to step up holdings of Chinese bonds and stocks, said Zhang Yidong, an analyst with Industrial Securities.

In 2021, China’s stock market is expected to see net inflows of funds through “northbound trading” exceed 35 billion U.S. dollars, and the Hushen 300 index is estimated to gain a return of around 16 percent, said Liu Jinjin, chief China equity strategist at Goldman Sachs.

You may also like

logo-white

Your Trusted Source for Capital Markets & Related News

© 2023 LiveTradingNews.com – For The Traders, By The Traders – All Right Reserved.

The information contained on this website shall not be construed as (i) an offer to purchase or sell, or the solicitation of an offer to purchase or sell, any securities or services, (ii) investment, legal, business or tax advice or an offer to provide such advice, or (iii) a basis for making any investment decision. An offering may only be made upon a qualified investor’s receipt not via this website of formal materials from the Knightsbridge an offering memorandum and subscription documentation (“offering materials”). In the case of any inconsistency between the information on this website and any such offering materials, the offering materials shall control. Securities shall not be offered or sold in any jurisdiction in which such offer or sale would be unlawful unless the requirements of the applicable laws of such jurisdiction have been satisfied. Any decision to invest in securities must be based solely upon the information set forth in the applicable offering materials, which should be read carefully by qualified investors prior to investing. An investment with Knightsbridge is not suitable or desirable for all investors; investors may lose all or a portion of the capital invested. Investors may be required to bear the financial risks of an investment for an indefinite period of time. Qualified investors are urged to consult with their own legal, financial and tax advisors before making any investment. Knightsbridge is a private investment firm that offers investment services to Qualified Investors, Members and Institutions ONLY. Qualified Investors are defined as individuals who have met those Qualifications in the relevant jurisdictions. Members are defined as individuals who have been accepted into the Knightsbridge membership program. Institutions are defined as entities such as banks, pension funds, and hedge funds. If you are not a Qualified Investor, Member or Institution, you are not eligible to invest with Knightsbridge. All investments involve risk, and there is no guarantee of profit. You may lose some or all of your investment. Past performance is not indicative of future results. Knightsbridge is not a registered investment advisor, and this disclaimer should not be construed as investment advice. Please consult with a qualified financial advisor before making any investment decisions. By accessing this website, you agree to the terms of this disclaimer. Thank you for your interest in Knightsbridge.