The Economic Information Daily hosted by The Xinhua News Agency on Wednesday publishes a comment signed by Wu Lihua in its front page. This article indicates that “national team” including China Securities Finance Corporation Limited (CSF) should reduce their intervention in the A-share market as much as possible, and it is not proper to buy low and sell high frequently.
The full text is as the followings:
Market observers believe that “national team”, including the CSF, ten largest asset management plans of China Securities Depository and Clearing Co., Ltd (CSDC) and companies under Wutongshu Investment Co., Ltd., should have been the main force to stabilize the stock market, but now, they become the main player of short-term investment to some extent.
Based on statistics from Essence Securities, up to Dec. 31, 2015, related national authorities held the A shares of 1,246 listed companies with a total market value of 1.12 trillion yuan, accounting for 2.7 percent of the circulating A-share market value; up to March 31 this year, these three figures were 1,221, 1.00 trillion yuan and 2.8 percent respectively. Study of Industrial Securities shows that, among constituent stocks of SSE50, CSI300, SME index and ChiNext index, the CSF and ten asset management plans of the CSDC hold 100 percent, 75 percent, 13 percent and 6 percent of the said constituent stocks respectively, with the market value of held shares taking up 12 percent, 8 percent, 2 percent and 1 percent of the free-circulating market value respectively.
Based on behavior mode, the market tended to be stable in the fourth quarter of 2015. The CSF mainly focused on decrease in shareholdings, covering 446 listed companies which accounted for 60 percent, and exited from the ten largest circulating shareholders of 201 listed companies. In the first quarter of 2016, the market fluctuation worsened. The CSF took moves to stabilize the market again. For the listed companies whose shares were held by the CSF, it adjusted the shareholding amount of at least 40 percent of the listed companies. The number of listed companies whose shareholdings were decreased by the CSF is nearly the same as that of those being increased. The CSDC carried out similar decrease in shareholdings for its ten largest asset management plans, which featured in buying low and selling high.
Since the dramatic fluctuation of A-share market in 2015, the market has always been weak, and widely-spread market crash occurred from time to time. The growth of most individual stocks for one week or even one month is usually hedged by plummet of one or two trading days. Investors are particularly nervous, and all rush out of the market when facing a sign of trouble. The market is always struggling with stock capital. Under this background, each move of the “national team” attracts close attention from all market players. For common investors, they are looking forward to bailout of the national team every time when the indexes are weak; and they will escape from the market with a quicker speed, once the expectation is not realized, causing widely-spread market crash of A shares. In terms of institutional investors, buying low and selling high of the national team have impact on market sustainability, artificially warping the market risk release or uptrend, therefore, the market players are always waiting and seeing.
The management has input massive capital since 2015 to maintain the market stabilization. Referring to capital sources, no matter from the CSF or securities companies, they are all facing certain cost pressure; for a long run, they also face pressure to exit from the market. Based on this, the national team could release such pressure through buying low and selling high to some extent. But it should be noticed that the national team is regarded as the force to stabilize the market, and longer time will be taken to consider its exit path from the market. Its frequent invention to the market in a short term actually scrambles for profits with the investors. It, on the contrary, distorts the overall market operation, pushes other investors’ behavior more short-term-oriented, and makes the investors become more consistent in expectation. Such market environment is very difficult to attract more investors and capital increment.
Referring to long-term and sound market development, the national team should make every effort to reduce its short-term intervention in the A-share market. It should take moves only when the market faces dramatic fluctuation. Frequent buying low and selling high is not proper. In terms of functions, the national team should be a long-term force to support the bottom, but not a short-term market player. The meeting recently held by the Political Bureau of the CPC Central Committee proposed to “maintain the sound development of stock market, fully play a regulating role of market mechanism, reinforce the establishment of basic systems, enhance the market supervision, and protect the investors’ right and interest”. Based on this significance, ups and downs of the stock market should rely on the market itself, and the national team should not play a leading role for the A shares to guide the market operation, which should gradually weakens.
Translated by Jelly Yi
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