CSRC chairman calls for 'rational investment'

Guo Shuqing, chairman of China's Securities Regulatory Commission, at the Caijing Annual Conference 2012 in Beijing in December. He said on Thursday that he plans to allow small and medium-sized enterprises to issue high-yield bonds. [Keith Bedford / Bloomberg]

Regulator plans to tackle issues concerning equity, bond markets

BEIJING - In a rare comment on the trend of China's equity markets, Guo Shuqing, the nation's top securities regulator, said on Thursday that there is great value in long-term investments.

The market's average price-to-earnings ratio has now dipped to a "record low level", said Guo, chairman of the China Securities Regulatory Commission. Low price-to-earnings ratios typically make investments more attractive.

In a speech posted on the CSRC's official website, Guo commented: "The optimum time has come for making rational investments," and he also mentioned plans to allow small and medium-sized enterprises to issue high-yield bonds.

Blue-chip stocks, he added, have "premium quality", but are currently priced much lower than their non-blue-chip counterparts.

"It is rare for a top regulator to give investment suggestions. It shows the chairman's determination to encourage rational investment and reform the Chinese securities market," said Li Wei, a Shanghai-based economist with Standard Chartered PLC.

Wang Jianhui, chief economist with Southwest Securities Co Ltd, agreed with Guo that the stock market has become attractive again after a bear market since 2009 cut the Shanghai Composite Index by almost a third. Wang expects to see a short-term rally again at the end of the month, when the central bank is likely to announce another cut in the reserve requirement.

Wang said Guo's comments will boost investor confidence and make direct financing easier at a time when economic growth is slowing and tight monetary policies have made bank loans less accessible.

"Direct financing is very important in the current economic climate. Besides promoting rational trading, Guo's words will also make it easier for upcoming IPOs and right issues," said Wang.

Concerning the bond market, Guo said the CSRC is conducting research into allowing SMEs to issue high-yield bonds through private placements, as a way of diversifying social funding channels.

The Economy & Nation Weekly, a Chinese business magazine, reported earlier that the bonds will be issued by non-public SMEs and there will be no requirement on maturity.

Wang said that the introduction of high-yield bonds would also benefit the stock market by prompting listed companies to pay greater dividends.

"The move will create competition. If public companies keep paying low dividends, investors will turn to high-yield bonds," said Wang.

In the speech, the chairman also explained how the CSRC will address a series of issues that have been plaguing the country's stock markets, including insider trading, over-speculation, unreasonably high issuing prices and incomplete dividend policies.

The CSRC will quicken its steps to promote the Qualified Foreign Institutional Investors scheme, which allows foreign asset managers to invest in the Chinese capital markets.

The move will raise the proportion of institutional investors in the securities market, said Guo.

China Daily

(China Daily 03/02/2012 page16)