CHINA-MARKETS/ANALYST China's stock market tribulations leave reform efforts shaken not shelved, analyst says

Record ID: 147364

  • Title: CHINA-MARKETS/ANALYST China's stock market tribulations leave reform efforts shaken not shelved, analyst says
  • Date: 13th July 2015
  • Summary: SHANGHAI, CHINA (JULY 13, 2015) (REUTERS) VARIOUS OF TICKER BOARD ON BRIDGE IN LUJIAZUI FINANCIAL DISTRICT SHOWING SHANGHAI COMPOSITE INDEX INVESTORS INSIDE A STOCK EXCHANGE VARIOUS OF STOCK INFORMATION ON SCREEN INVESTORS INSIDE A STOCK EXCHANGE STOCK INFORMATION ON SCREEN HONG KONG, CHINA (JULY 13, 2015) (REUTERS) HONG KONG FINANCIAL DISTRICT EXCHANGE SQUARE BNP PARIBAS
  • Embargoed: 28th July 2015 13:00
  • Keywords:
  • Location: China
  • Country: China
  • Topics: General
  • Reuters ID: LVA1DR1SSBK95ATRHAMMLTNX1L6Q
  • Aspect Ratio: 16:9
  • Story Text: China stocks extended their recovery for a third day on Monday (July 13) raising hopes that measures taken by Beijing to prevent a full-blown market crash have worked.
    However, the degree of intervention Beijing has made to avert a market implosion will leave much soul searching among pro-market officials, one analyst said.
    Chinese authorities have cut interest rates, suspended initial public offerings, relaxed margin lending and collateral rules and enlisted brokerages to buy stocks, backed by cash from the central bank.
    Having briefly rallied above the a key psychological level of 4,000 points, the Shanghai index is now mid-way between last week's four-month low and a perceived ceiling of 4,500 points, a level under which a government-backed bailout fund, formed by 21 brokerages, has promised not to sell.
    BNP Paribas Greater China senior economist, Chi Lo said that some of the factors that led to the market bubble itself were the result of over-zealous government policies to breathe life into the market.
    "Now on that I do agree with the measures the government implemented. Because we cannot have the Chinese market that has grown into a bubble because of administrative measures, and let market forces to clear it. Because market forces will be too big an impact, to inflict too big a risk in the system that could make it implode. So the government has to use administrative measures again to unwound those measures it has put in before. But then as far as the reform resolve is concerned, I think it's still there," he said.
    Chi said he believed the experiences of the past few weeks would leave officials less willing to take risks in the future when it came to other areas of financial reform, including yuan (RMB) liberalisation, a key reform which Beijing hopes will energize a flagging economy.
    "Because of this clumsy movement in the stock market over the last few weeks and the bubble burst, that could inflict a kind of a confidence shock both to the public in China and to the government which will make them more risk averse. So what I expect is that the pace of capital account liberalization and RMB internationalization will slow down. They will not stop. But the pace compared to what we saw in the past two years will slow down because the government needs breathing space to go back to the drawing board and think about what went wrong in the implementation process," said Chi.
    In Shanghai, one investor said the movement was normal for a Chinese market.
    "I think it (the market) is abnormal. But for a Chinese market it's normal. China's market is different from developed markets overseas because there are too many speculators in our market. From my perspective, prices always skyrocket or plummet too much in the market," said 31 year old investor Xiao Shuang.
    Twenty-three-year-old investor Huang Leiwei said he expected the market to stabilise.
    "I'm pretty optimistic, I think one should maintain a moderately positive outlook on the future of the market. But I don't believe it will increase a lot like before and it won't be a such bull market. If it's a bull market, it will still be a slow-bull market," he said.
    The Shanghai Composite Index closed 2.4 percent up at 3,970.39 at the end of trade on Monday. It has gained 13.2 percent during the past three sessions.
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