China’s equities market is likely to be the next ‘big bang’

By Li Hong Source:Global Times Published: 2020/1/5 21:28:10

Illustration: Luo Xuan/GT

The fortunes with China's ascendant equities market are difficult to fathom, but colossal returns are broadly anticipated by upbeat economists and enthusiastic individual and institutional investors. 

Many predict China's stock market benchmark index will rally 20-30 percent in 2020, supported by the country's dynamic economy. If the tariffs war with the US is substantively decelerated this year, China is expected to return back to achieving an annual 6-6.5 percent growth. 

Four factors set a strong base for the country's capital market to stage a bullish run in the next 10 years: China's technology ventures are springing up and gaining rising traction among global peers, the country's middle class' consumption power is going to be the largest in the world, the country has a strong and uninterrupted leadership that ensures policy continuity, and China has undertaken a series of capital market structural reforms since the second half of 2019 that drastically ease foreign investment into its financial sector. 

Since the S&P 500 Index has soared over 400 percent over the past 30 years, half of that growth for the Shanghai Composite Stock Index in the upcoming 30 years will generate a mountain of gold for investors.

The returns of China's equities market in the coming decade will be comparable to the spectacular 10-year rally of the US stock market which stood up from the ruins of the 2008-09 economic meltdown. 

When China's massive technology upstarts obtain an access to direct financing by issuing stocks or bonds, they are inspired to research and develop the world's best innovations and generate the largest possible revenue and profit, as elevating equity prices are the best rewards for the entrepreneurs, and the investors as well. 

And, after the Chinese middle class families see their household balance sheets double or even triple as the equities they bought roar and soar in prices, they are going to consume more with their growing prosperity, which in return will fire up China's economic growth. 

Pessimism about a hard landing of the world's second largest economy is dissipating after China has weathered a ferocious and protracted trade war with the US and has come out of it largely unscathed. The economy is forecasted to grow 6.2 percent in 2019, and the decision-makers in Beijing have a full policy toolbox at their disposal in the beginning of 2020 to make sure the $14 trillion economy runs on a safe and relatively fast track in 2020 and beyond.

Economic resilience gives the investors more confidence. In 2019, China's Shanghai stock index rose 22.3 percent. And, China's capital market has witnessed a remarkable rally in the past 20 days after China and the US agreed in December to a phase one trade agreement which will unleash a thawing of their icy trade ties. 

Now, it seems that China's market investors have largely shrugged off the negative impact and economic side effects caused by the trade war, and more investors are swarming in to the market to chase China's technology and consumer stocks, which have been encouraged by a spate of bold capital market reform measures taken by Beijing in the second half of 2019.

The State Council stated that it is necessary to expand the high-level two-way opening-up of China's financial industry, and moved to encourage overseas financial institutions and funds to enter the domestic capital market. 

To enhance vitality and competitiveness of China's financial sector, China's central authorities meted out an array of financial opening-up measures, including stock connect schemes and scrapping quota for qualified foreign investors.

Many foreign investors attracted by China's strong growth potential are snapping up yuan-denominated assets. They had purchased a record sum of 1.77 trillion yuan ($254 billion) in Chinese equities as of the end of September, according to data from China's central bank. 

China also revised the securities law by instituting a registration-based IPO system, which is aimed to cut red tape and corporate costs of getting listed. Previously, any issuance of an IPO needs to be approved by China Securities Regulatory Commission under the State Council. 

Effective on March 1, the new law rules that companies seeking an IPO on Shanghai and Shenzhen exchanges will be vetted by the bourses rather than the regulator. The new legislation, which eases listing requirements, also includes much tougher penalties to deter stock market fraud, including deceitful listing and insider trading. And, inclusion of China's A shares into global stock benchmarks by index publishers such as MSCI and FTSE Russell makes Chinese equities increasingly attractive to global investors. 

China's capital market will be the next "big bang" in the global economic landscape, and it will offer a lifetime of opportunity. 

The author is an editor with the Global Times. bizopinion@globaltimes.com.cn

Posted in: COLUMNISTS

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