Experts: Ratio cut in capital market big deal

The reduction of equity businesses' minimum settlement reserve ratio from 16 percent to 13 percent, which was announced on Thursday night and will be effective from October, is a big move, experts said on Friday.

They said the cut — the biggest-ever of its kind — is part of the follow-up moves in response to the policymakers' expressed desire that the capital market should be reinvigorated to play a key role in the nation's pursuit of sustained recovery and high-quality development.

China Securities Depository and Clearing Corp Ltd, which is responsible for the registration, settlement and clearing of securities, announced the move on Thursday night.

Experts at Dongxing Securities said the cut is analogous to the central bank's reserve requirement ratio or RRR cuts. A lower minimum settlement reserve ratio, they said, will help enhance the efficiency in use of capital and inject more liquidity into the market.

The ratio was first lowered in December 2019 from 20 percent to 18 percent and cut further to 16 percent in April 2022.

Data from the public domain showed the first cut injected 11 billion yuan ($1.5 billion) into the market and the second one infused another 20 billion yuan. The cut in October is expected to boost liquidity by 25.5 billion yuan, said Yang Delong, chief economist of Shenzhen-based First Seafront Fund.

That's not all. More domestic and foreign capital will likely enter the A-share market. A long bull run may be on the cards and household income will likely increase, leading to quicker recovery in consumption, experts said.

On July 24, the Political Bureau of the Communist Party of China Central Committee met in Beijing and decided that more efforts are required to energize the capital market and boost investor confidence.

After its two-day midyear work conference that concluded on July 25, the China Securities Regulatory Commission said policies should comprehensively facilitate investment, financing and trading.

The CSRC stressed normalization of IPOs as part of the efforts to stabilize the capital market and investor expectations.

According to Shanghai-based market tracker Wind Info, 73 IPOs were made on the ChiNext in Shenzhen from Jan 1 to July 31, overtaking floats on all other boards. During the period, the STAR Market of the Shanghai Stock Exchange topped in terms of proceeds — its 51 IPOs netted 104 billion yuan or more than 42 percent of the total.

Experts of professional services provider KPMG said companies specializing in high-end manufacturing, information technology and biomedicine lead the IPO pack as well as the list of proceeds, confirming that capital is strengthening strategic emerging industrial clusters, thereby contributing to the country's pursuit of high-quality development.

But, some investors expressed concern that no IPO application was filed with the Shanghai and Shenzhen bourses in July. Some market insiders said there is some buzz about whether the IPO approval process is slowing.

Wang Jiyue, an independent investment banking analyst, however, said July can be considered a "slack season" for IPOs as most applicants file their documentation in June ahead of obligations like having to file midyear financial statements from July 1.

In July 2022, only three companies filed for IPOs while only two did so in July 2021.

Lai Chee Kong, EY's assurance partner, said IPO activity will remain high in the second half of this year, thanks to China's measures to stabilize economic growth. Experts said they expect more economic stimulus packages in the coming months.

Deloitte China's Capital Market Services Group forecast the A-share market's IPO proceeds may be in the range of 620 billion yuan to 699 billion yuan this year, much more than the 586.8 billion yuan gathered in 2022.