Market Saving Policy Won't Bring Prosperous Gains

The Central Huijin Investment Company, an investment arm of China's sovereign-wealth fund, bought shares in four major Chinese State-owned commercial banks on the secondary market on the first trading day after the long national holiday this week. Does this kind of share increase indicate that the stocks are at a low ebb 1 and will these purchases make them more attractive to other investors 3? Some market insiders provide their own opinions.

Let's take a closer look with our reporter Liu Min.

 

The four banks include the Industrial and Commercial Bank of China, the Agricultural Bank of China, the Bank of China and the China Construction Bank. Right before the close of trading on Monday, the four banks stock prices picked up momentum 4 by rising 0.23 to 0.7 percent after a series of recent slumps 5.

Market analysts 7 believe Central Huijin's buying-in is a clear signal of market saving, which is helpful in encouraging investor 2 confidence. Financial Analyst 6 Gui Haoming is from Shenyin & Wanguo Securities.

"As the major share holder 8 of the four banks, the Central Huijin Investment Company does want to hold up the stock prices. Its main purpose is to tell the investors that the company is quite positive about the bank-stocks' trend and the Chinese economy, and also optimistic about the Chinese stock market. Such confident expression should have a guiding effect over the share market."

This is the third time the central investment company has increased its shares in these four banks. And this time, the number of shares was much larger than in previous transactions. According to statistics shown on the A-share market on Monday, the capital invested by the company reached 197 million yuan in total. The company has also indicated that this is just a start and it will follow trends in the banks' share's closely to decide whether to make further purchases.

Yang Delong, a senior stock analyst has some doubt on its impact.

"The company Huijin has invested much more capital in protecting the stock prices compared to its strategy in 2008. On average, it increased two million shares on average in 2008, but this time, it invested about 10 million each on average with the total amount of capital being about 200 million yuan. The stocks rebounded 10 in 2008 after the purchase, but the market slumped 11 down to 1660 points because of the economic crisis. So I predict that the stock prices will continue to drop for some time before they hit the bottom. Investors have to be cautious when analyzing 12 these trends."

Many analysts share the view that this rescue measures will have limited impact on the Chinese stock market due to the complicated domestic and global economic environment. First, the international economic situation is quite unstable 13. The European and American debt crises will further develop and cause a redistribution of global economic gains. Second, China is also going through a major industrial structure reform. Surging labor 14 costs which have caused systemic inflation won't fade away any time soon in China. In addition to this, the domestic financial policies are still tightening 15 up.

Financial Commentator 16 Shui Pi says investors need to follow China's monetary 17 policies more closely to make accurate judgments 18 about the future.

"Protective stock market policies won't reverse the entire direction of the market. We need to look at the overall monetary policy. We need to see if the central government will introduce loose monetary policies in certain fields. Only when the monetary policy changes, will the market have solid foundations to pick up momentum. That's when market-rescuing methods really work; otherwise the current purchases can only result a brief rebound 9 on stock prices."

The recent information from the central financial administrative 19 department indicates that it's still quite difficult to loosen up overall monetary policy in the near future. With CPI currently at a high, the monetary policy over the next three months may be slightly adjusted to the favour of agriculture, small and medium enterprises and government subsidized housing projects. Some analysts believe this adjustment will help avoid some the side effect of the current tight monetary policy.

 

For CRI, I'm Liu Min.