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Surge in Shanghai
shares
BEIJING - Shares
rallied by nearly 2% on Tuesday, driven by news
that more insurance companies are buying stocks
and concrete moves will be adopted to improve the
capital market. The benchmark Shanghai Composite
Index moved above the psychologically important
1,300 level, advancing by 1.9% to close at
1,318.217.
A number of domestic insurers,
including China Life, the biggest life insurer in
China, and China Reinsurance, started buying
stocks on Monday through their asset-management
subsidiaries. More are expected to follow the
trend in the days ahead. So far, nine insurance
firms have received approval from the China
Insurance Regulatory Commission to trade stocks
directly. Huatai Insurance made the maiden stock
purchase on February 17, shortly after regulators
gave the green light.
The insurance
companies did not reveal how much money they would
throw at the bourses in the near term, though the
official ceiling is 5% of total assets. "The news
that insurance funds are entering the stock market
was an impetus for Tuesday's spurt, but it was not
the only reason," said Fang Zichao, an analyst
with China International Trust and Investment
Corporation Securities Co. A number of insurance
companies are already buying stocks, but their
volume will be very limited compared to the
overall market capitalization, he added.
It is estimated that at most around 50
billion to 60 billion yuan (US$6 billion to $7
billion) of insurance assets could be used for
stock investments. And at the current stage,
insurance firms are being careful in their stock
picks and investment strategies, so it is unlikely
that insurance funds will be plunged into the
bourses any time soon, analysts said.
The
market recovery reflects improving investment
sentiment as investors become more rational and
confident due to expected market reforms, said
Fang. Blue-chip stocks that have reported solid
growth are leading the rally. The annual results
of such companies have been impressive too. A
spokesman from China Life said these stocks are
the company's prime investment
target.
Moreover, after giving banks the
go-ahead to set up fund management companies and
allowing insurers to trade stocks in February, top
government officials reiterated the urgency for
more reforms in the capital market during the
ongoing third plenum of the 10th National People's
Congress (NPC). The policy environment is getting
warmer, and it seems the authorities will take
further concrete steps to upgrade the market
fundamentals, said Fang.
Chinese Premier
Wen Jiabao's promise to protect the legitimate
rights of minority shareholders in his address to
the annual NPC session on Saturday has also played
a part in the recovery. That promise has been
welcomed by the country's investors, who have
suffered heavy losses on the stock markets over
the past four years.
Rampant market
irregularities by listed firms, lack of action
from regulators to crack down on irregularities
and structural problems have been blamed by
experts and investors for the bearish market
performance during the past four years. Most
minority stock holders, totaling tens of millions,
have been bitter about the situation, as they have
lost heavily during the period.
Chinese
stock markets hit five-year record lows during the
past two months, despite the Chinese economy's
breathtaking growth, at an average annual rate of
9.5%. Yan, a 48-year-old investor in Beijing, said
Wen's unprecedented promise in the annual NPC
address sent a clear message to investors that
government departments will bear that in mind when
dealing with things involving the securities
sector. Regulating the market according to law is
of vital importance for the recovery of investors'
confidence, said Yan.
He said the Chinese
stock markets would be less risky for investors if
the regulators, the listed firms, securities firms
and accountants' offices are all honest and act
strictly in accordance with the law. Some
Chinese-listed firms, mostly state-owned ones,
have been found to fabricate figures to fool
investors in their public offerings, and make
promises they never intend to honor. Yet few firms
were given the severe punishment they deserve.
Zhang Gengxin, another investor, said some
managers of listed firms raised millions of
dollars from the markets by deliberately using
false information. But "their maximum punishment
is usually just jail terms of several years or
fines worth merely $10,000".
Yu Liang, 68,
said people have no confidence in the stock
markets as it is too risky to invest in the
markets since many listed firms do not respect the
legitimate rights of minority stock holders. The
Shanghai Composite Index, which covers
yuan-denominated A shares and foreign-currency B
shares, stood below 1,300 points until recently,
after hitting five-year lows from about 2,100
points in 2001.
But most experts believe
the lackluster performance of the Chinese stock
markets does not stem from irregularities, but is
caused by a fundamental structural problem - the
split-share structure resulting from a command
economy. This refers to the existence of a large
volume of non-tradable state and legal personal
shares and the fact that only about one-third of
the shares in domestically listed companies are
floated on the market. Regulators say the
government is considering ways to solve the
longstanding problem.
(Asia
Pulse/XIC) |
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