zhang ming: take multiple measures to promote the sustainable development of the stock market
2024-10-05
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this round of rapid stock market rise has attractednew generation investors such as those born in the 1990s and 2000s have entered the market. these new generation investors and low- and middle-income investors should be reminded of the risks associated with stock and fund investment through various channels.
in the past two or three years, the performance of china's a-share market and the hong kong stock market has been unsatisfactory, and there is a big contrast with developed countries, especially the u.s. stock market. the reasons for the sluggish performance of the stock market are, firstly, related to the weakening fundamentals of listed companies caused by the slowdown in china's economic growth, secondly, the fact that specific industries (such as the real estate market) have entered an adjustment period, and thirdly, some institutional problems existing in the a-share market related (such as falsification of financial information of listed companies, falsely high listing prices and reduction of holdings by major shareholders, related operations of listed companies, etc.), the fourth is related to investors' lack of confidence and expectations in the future.the continuous adjustment of china's stock market has resulted in an overshoot to a certain extent. to this end, the author published an article titled "nine reasons why you don't have to be too pessimistic about the stock market" on september 1 this year. these nine reasons are: first, the current valuation level of china's stock market is already at a historically low level; second, with the implementation of more expansionary fiscal and monetary policies, the rebound in china's nominal gdp growth will boost listed companies profitability has rebounded; third, the capital going north is very profit-seeking and volatile, so there is no need to worry about its continued outflow; fourth, the recent depreciation of the rmb exchange rate against the us dollar has turned to an increase, which may become an important force in promoting the recovery of the stock market; fifth , the a-share market is expected to become a key area for residents’ wealth allocation in the next stage; sixth, a series of normative measures recently implemented by the china securities regulatory commission will help promote the medium- and long-term sustainable development of china’s stock market; seventh, the national council of social security to a certain extent, it has played the role of china's stock market stabilization fund, and local pension funds may increase their investment in the stock market in the future; eighth, the convening of the third plenary session of the 20th central committee of the communist party of china is expected to significantly boost investor expectations; ninth, china the government will spare no effort to support the development of capital markets. for example, to do a good job in technology finance and pension finance, we cannot do without the sustained and healthy development of the stock market.however, after this review article was published, 99% of the comments received were negative, including many irrational attacks and abuses, which reflected the disappointment, pessimism and even anger of stock market investors.with the "924" monetary and financial policy being relaxed beyond market expectations, the "926" central political bureau meeting was convened, and a series of policies were intensively introduced before the national day. market confidence subsequently changed sharply, from extreme pessimism to extreme optimism. for example, in just five trading days from september 24, the shanghai composite index rose from 2,770.75 points to 3,336.50 points, an increase of 20.4%. another example is that on october 2, the national day holiday, because the a-share market did not open, a large amount of domestic and foreign funds poured into the hong kong stock market.hang seng indexit rose more than 1,300 points in one day, an increase of 6.2%.the rise in the a-share and hong kong stock markets reflects the revaluation of the chinese stock market by domestic and foreign investors, which is a good thing for the stock market itself, investor confidence, and macroeconomic growth. however, if the stock market rises too quickly in the short term, the risks involved become increasingly difficult to ignore.
first, the current rapid rise in the stock market has formed an increasing contrast with the still weak economic fundamentals and the fundamentals of listed companies. in the first and second quarters of this year, china's gdp growth rate was 5.3% and 4.7% respectively. judging from high-frequency macro-financial data in july and august, there is a high probability that gdp growth in the third quarter of this year will be lower than 4.5%. among the current macroeconomic troika, the performance of consumption and investment is unsatisfactory, and only the performance of exports is remarkable. however, in the context of weakening global demand and intensifying geopolitical and economic conflicts, there is great uncertainty about whether china's exports can continue to grow at a high rate in the future. although the "924" monetary and financial policy easing and the "926" politburo meeting significantly increased market expectations, there is a long time lag (at least one or two quarters) between the release of policy signals and the bottoming out of the macro economy. once investors begin to refocus on fundamental issues, the rapid rise of the a-share market will be difficult to sustain in the short term.second, the current rapid rise in the stock market is based on investors' expectations that china's fiscal policy will be quickly adjusted after the national day and will significantly increase expansion efforts. once the fiscal policy is not adjusted in a timely manner after the national day, or the adjustment is weaker than market expectations, investors' optimism may quickly reverse in the short term, and even lead to a rapid and sharp decline in stock market indexes.third, in recent trading days, the a-share and hong kong stock indexes have risen too fast, and many individual investors have not reacted and followed up in time. the investors currently entering the market are mainly institutional investors, and a large part of the funds come from foreign countries.hedge fundand other foreign institutional investors. these investors have information advantages and operational advantages, and can realize fast in and fast out. if the rise of china's stock market slows down or even corrects in the future after a sharp rise, then the above-mentioned institutional investors will definitely be the first to exit, while a large number of belated individual investors, especially those who entered the market late, will be trapped. once a large number of individual investors suffer heavy losses in the stock market again, the long-term impact on the healthy development of the stock market will be inestimable.fourth, due to the recent hot performance of the stock market, a large number of investors have begun to sell money market funds,bond fundsand financial products to withdraw funds and invest them in the stock market. this has had a big impact on these products. for example, as bonds face strong selling pressure, the 10-year treasury yield has rebounded from around 2.0% to around 2.2%. the decline in bond prices has caused significant losses to relevant investors, and related losses may continue to expand in the future. in the coming period, the degree of bond issuance by various bond issuers is likely to increase significantly.
the author believes that at present, relevant departments should take multiple measures to promote sustainable growth of the stock market.first, the central government should signal that fiscal policy will be significantly relaxed as soon as possible after the national day holiday to avoid significant market adjustments if market expectations are met. it is recommended that the ministry of finance issue an additional 1 trillion special treasury bonds in october this year and 4 trillion to 5 trillion treasury bonds in the first half of 2025 to repair the damaged balance sheets of households and enterprises, support infrastructure investment, stabilize the real estate market, etc. .secondly, in the context of a significant increase in market demand, the china securities regulatory commission should resume the normal pace of ipos as soon as possible and even significantly expand the scale of ipos. this will not only help alleviate the short-term upward pressure on the stock market, but also help restore the financing function of the stock market, broaden the exit channels for equity investment, and promote the development of venture capital and private equity investment.once again, on the premise of cracking down on malicious short selling, the china securities regulatory commissionshould continuerestore normal short selling mechanism. the short-selling mechanism is an indispensable function of the modern stock market, which can prevent stock prices from rising too fast or even forming serious bubbles. currently, the china securities regulatory commission needs to clarify the boundaries between normal short selling and malicious short selling to avoid expanding the concept of malicious short selling. in addition, the china securities regulatory commission should also remove practical restrictions on large-scale stock sales by certain institutional investors.fourth, relevant departments should speed up the entry of long-term investors and increase their entry scale. for example, the proportion of local social security funds that are managed indirectly through the national council for social security can be increased. as another example, the proportion of insurance company funds invested in the stock market can be moderately increased. long-term investors pay more attention to the long-term investment value of stocks (such as dividend payout ratio), and the turnover rate is lower, which contributes to the stable growth of the stock market.fifth, regulatory agencies and relevant media should increase risk warnings to individual investors. the current rapid rise in the stock market has begun to attract new generation investors such as those born in the 1990s and 2000s. these investors have not experienced the cyclical turbulence of the stock market in the past and are prone to losses. for new generation investors and low- and middle-income investors, relevant departments should remind them of the risks associated with stock and fund investment through various channels.sixth, in order to promote the sustained and healthy development of china's stock market, and taking into account the current size of the capital market, it is recommended to raise funds through the issuance of two trillion special treasury bonds, establish a china stock market stabilization fund, and invest in blue-chip leading stocks and etfs on the stock market. buy low and sell high to promote market stability. the relevant operations of china's stock market stabilization fund can also be combined with the construction of the valuation system of state-owned enterprises. before the stock market stabilization fund is established, the role of the national council for social security can be better utilized. relevant signals should be sent to the market that the chinese government will not let the sharp decline in the stock market go unnoticed in order to stabilize market confidence.seventh, the decision of the third plenary session of the 20th central committee of the communist party of china contains many important policy signals regarding future reform and opening up, but many market entities do not fully understand this. therefore, on the one hand, the chinese government should increase its interpretation of future reform and opening up measures, and on the other hand, it should speed up the implementation of relevant reform measures. the implementation of reform and opening up measures will significantly enhance the mid- to long-term confidence of market entities in the chinese economy, thereby promoting the sustainable growth of the stock market.the author is deputy director of the institute of finance, chinese academy of social sciences, and deputy director of the national finance and development laboratory.
