An investor looks at stock prices at a securities company in Fuyang City, Anhui Province. (Photo provided by Wang Biao/China Daily)
The recent volatility in the A-share market is normal, and the market’s upward momentum is quite solid as regulators continue to strive to strengthen liquidity and improve the quality of listed companies, internal sources said. officials said.
The benchmark Shanghai Composite Index, which has hovered around the 3,100-point range since early April, fell 0.29% on Friday to close at 3,065.26 points. The Shenzhen Component Index fell 1.04%, while Shenzhen’s technology-heavy ChiNext closed 1.76% lower.
The biggest contributors to Friday’s decline were solar power companies, education service providers and semiconductor manufacturers.
As investors wait for firm signs of a bull market, attention has increased on the leading A-shares that influence the index. Investors focused on banking, one of the leading sectors, as Fitch Ratings downgraded the outlook on six Chinese banks’ credit ratings from stable to negative on Tuesday. The six companies included China’s “big four” banks: Bank of China, Agricultural Bank of China, China Construction Bank, and Industrial and Commercial Bank of China.
Investors spared listed commercial banks on Friday, causing an average decline of 0.27%, but the overall attractiveness of banks should not be ignored, market participants said.
Bank A shares saw capital inflows of more than 13 billion yuan ($1.8 billion) in the latest trading week starting April 15, marking the fourth consecutive day of net capital inflows since Monday.
Foreign investors are also showing strong interest. Of the 22 billion yuan invested by foreign investors in the A-share market through the Stock Connect program connecting exchanges in Shanghai, Shenzhen and Hong Kong, 3.1 billion yuan went to listed banks.
Xiao Feifei, an analyst at CITIC Securities, said investors may inject more money into bank stocks. Banks listed on the A-share market may see their first-quarter performance reach their lowest level this year, but could expect an improvement in the second half of the year, he said.
Investors can choose large commercial banks as their best defense, as they typically offer lower risk and more generous dividends. As China’s economic recovery progresses, commercial banks’ valuations are likely to rise significantly, he said.
On October 11, Central Huijin Investment, a division of China’s sovereign wealth fund, announced that it would increase its stake in the “big four” stocks in the secondary market for six months.
According to announcements subsequently made by the four banks, Central Huijin purchased approximately 1.1 billion shares of the four banks. This caused the bank’s stock price to rise. BOC stock rose 20% and ABC stock soared more than 18%. The stock prices of his two other companies have risen more than 13% in the past six months.
Central Huijin is broadly injecting liquidity into the market, insiders said. Central Huijin spent about 145 billion yuan on purchases of three broad-based exchange-traded funds (ETFs) that invest more broadly in the market, according to the asset manager’s first quarter report.
The new guidelines released by the State Council in early April aim to further promote the high-quality development of China’s capital market and strengthen risk prevention. Zhang Xia, chief strategist at China Merchants Securities, said this will bring major changes to the market.
Unlike previous measures that focused on the financing function of capital markets, the new guidelines place greater emphasis on the investment objectives of capital markets. In that sense, the supply of funds in the A-share market is likely to improve further. The new guidelines emphasize dividend payments and share buybacks for listed companies, and financial institutions are expected to bring more medium- and long-term capital into the market, Zhang said.
Zeng Gang, director of Shanghai Financial Research Institute %26 Development, said banks will benefit from the introduction of more long-term capital as the distribution channels for wealth management products will further expand and investment returns will improve.
