China’s state-run media are trying to do something the securities industry has failed to accomplish for much of the past three years: get the world’s biggest population to buy more stocks.
The official Xinhua News Agency published at least eight articles this week advocating equity investing after similar stories appeared in the People’s Daily newspaper and on state-run television last month, part of what Everbright Securities Co. says is an increased government push to bolster the market. Authorities have also cut trading fees, made it cheaper to open new accounts and organized investor presentations by the biggest listed banks in the past two weeks.
Huang Shi got the message.
The media campaign “did influence my purchase,” Huang, a 26-year-old who works in the finance industry in the northeastern city of Harbin, said after shifting more than 20,000 yuan ($3,257) into shares last week. “Also, our stock market had slumped for so long.”
Chinese policy makers are trying to rekindle interest in stocks after the Shanghai Composite Index lost $460 billion of market value in the three years through May, the most worldwide, and investors liquidated almost 5 million trading accounts. A shift toward equities may help the government reduce speculative investing in the property market and curb risks tied to lightly regulated wealth-management products, whose assets rose to a record $2.1 trillion in the first half.
The government’s promotion of shares, which follows forecasts for gains this year from brokerages including Citigroup Inc. and Morgan Stanley, may already be having an impact.
The Shanghai Composite rose to a 15-month high yesterday and has gained 12 percent since the end of May, fueled by speculation the world’s second-largest economy is weathering its real-estate slump. It climbed 0.8 percent to 2,306.86 today while the iShares China Large-Cap ETF added 1 percent to $42.49 at 10:01 a.m. in New York.
After shrinking for 12 straight weeks through Aug. 8 to the lowest level since March 2010, the number of equity accounts containing funds is rising while the pace of new account openings has doubled since May.
China is also seeking a buoyant stock market as the country of 1.3 billion people opens up further to foreign investors through an exchange link with Hong Kong scheduled to start in October. The program will allow a net 23.5 billion yuan of daily purchases between Asia’s biggest equity markets after Japan.
“The government is indeed encouraging stock investment,” Zeng Xianzhao, an analyst at Everbright Securities, said by phone from Chongqing yesterday. “They need the market to be vibrant to encourage foreign funds into the country.”
Xinhua’s commentaries and news stories on equities included headlines such as “China needs a bull market with quality” and “How could the stock market be invigorated?”
A common view in China is that the country’s “new phase of economic and social development will certainly bring precious confidence and strong support to the stock market,” the news agency said on Aug. 31. Reports from the People’s Daily and China Central Television last month showed how money is flowing into stocks from the property market.
China said this month it will reduce fees by more than half for individuals and institutions opening share accounts, while the futures exchange cut margin requirements for equity-index contracts on Sept. 1.
Regulators also announced plans to allow investors to consolidate their accounts covering stocks, mutual funds and other securities. The Shanghai Stock Exchange said this week it’s hosting presentations by 14 listed banks to improve transparency and cultivate investor relationships.
“The government wants to change peoples’ outlook,” Ronald Wan, the chief China adviser at Asian Capital Holdings Ltd. in Hong Kong, said yesterday. “A strong equity market is a prerequisite for healthy capital-market reform in China.”
The China Securities Regulatory Commission didn’t immediately respond to a faxed request for comment. A Xinhua official said it doesn’t have an office that answers media enquiries.
The combination of bullish coverage from state media and surging demand from local investors didn’t prevent shares from tumbling five years ago. While the nation’s two largest financial newspapers published articles saying the rally would continue and new-account openings surged to an 18-month high in July 2009, the Shanghai Composite lost 23 percent over the next 12 months.
Volatility in Chinese equities now may deter some investors from increasing holdings, according to Credit Suisse Group AG. The Shanghai Composite has posted average annual swings of 44 percent in the past decade, while wealth management products offer annualized returns of about 5 percent.
Yet Chinese stock valuations are still low relative to history, which gives the market room to rally further as the economy improves, said Roxy Wong, a Hong Kong-based senior portfolio manager at Lombard Odier & Cie., which oversees about $169 billion worldwide.
The Shanghai Composite trades at 11 times reported earnings, 24 percent below its five-year average and down from a multiple of 29 in July 2009, according to data compiled by Bloomberg. Data yesterday showed China’s service industries improved in August, fueling speculation the economy is strong enough to offset declining home prices and a pullback in manufacturing.
China’s real-estate slump is spurring local investors to shift more of their money into stocks, according to Chen Xingdong, the chief China economist at BNP Paribas SA in Beijing. Signs of increased risk in wealth management and trust products may also make shares an attractive alternative, said Kathy Xu, a Hong Kong-based money manager at Aberdeen Asset Management Plc.
China’s new-home prices fell in July in almost all cities that the government tracks, according to the National Bureau of Statistics. At least 10 Chinese trusts struggled to meet payments in the three months through August, sparking protests by investors outside banks that distributed the products.
Equities comprised 4 percent of Chinese households’ total assets as of 2013, according to a June report from Credit Suisse. Bank deposits accounted for about 22 percent while property made up 55 percent.
The average annualized investment return on residential properties in China was 3.53 percent in July, down from 4.6 percent in June, according to Zhongjin Standard Data Research Ltd. in Hong Kong. The Shanghai Composite has an earnings yield of about 9 percent.
“You might even start to see retail money re-directed to equities after years of chasing real estate,” said Michael Shaoul, the New York-based chairman of Marketfield Asset Management LLC, which oversees about $18.5 billion.
— With assistance by Xiaoqing Pi, and Weiyi Lim