China's top think tank said Wednesday that the possibility for the country's stock market to see a significant improvement will increase in 2014.
The Chinese Academy of Social Sciences said in a report released Wednesday that China's policy environment next year will resemble that of 1999 in many ways, so the stock market might make dramatic gains, just as it did 14 years go.
The benchmark Shanghai Composite Index increased from around 1,100 to more than 1,600 within two months from mid-May in 1999, with companies engaged in Internet technology leading the boom.
Qiu Yanying, an analyst with TX Investment Consulting, told the Global Times Wednesday that a dramatic rise in the stock market might happen amid fluctuations that are likely to be caused by the country's reform policies.
China is set to resume approval of IPOs next year, and this "will theoretically benefit the market in the long term, but it will definitely cause fluctuations in the market," Qiu said. "So a quick rise may happen thanks to the reforms, but it will be accompanied by sharp drops."
China's local governments and companies are faced with high debts due to many years of over-investment, the report said, and the country needs to revitalize the stock market to mitigate this problem.
The stock market will be challenged by a difficult domestic currency environment, as the central bank will gradually lean toward a neutral-to-tight monetary policy and the growth of China's funds outstanding for foreign exchange will slow next year, the report predicted.
"Next year's currency environment for the stock market will be worse than 2013," the report said. "That is not beneficial to boost the stock market's vitality."
The government should try to boost domestic consumption and increase investors' confidence by deepening the reforms, the report said.
Li Daxiao, director of research at Yingda Securities Co, told the Global Times Tuesday that he was optimistic that China will experience a bull market next year, thanks to efforts by the central government and the securities market regulator to push forward with financial reform.
However, Qiu said he did not expect the stock market's overall performance in 2014 to be much better than this year. "The general reform direction should be beneficial for the market in the long run, but the plans will cause short-term shocks as well," he said.