Gloomy markets defy expected growth

Listing

At the same time, there are many companies awaiting approval to list from the top securities regulator.

By the end of November, the number of companies on the waiting list for IPO approval had increased to 809, 155 for the Shanghai main board, 338 for the Shenzhen small and medium-sized enterprises board and 316 for the growth enterprise market, also known as ChiNext, the China Securities Regulatory Commission said. Market expectations of future reform of new-share issuing is rising.

Despite progress in stock market reforms in recent years, structural and governance issues remain and continue to plague China's equity market, according to Wang, the UBS chief China economist.

The current problems are focused on the IPO process, insufficient transparency in company disclosures, inadequate investor protection and insider trading, she added.

"These issues may in part stem from the fact the government often sees the stock market more as a source of financing for the economy than as a way to improve capital allocation," said Wang. "The CSRC launched a new reform initiative in 2011 to tackle some of these issues, which has been welcomed by the market, but it will take time to see major progress."

On the policy front, regulators have given clear indications they are loosening controls after numerous policies were rolled out to promote reform and innovation.

Li Xiaoxue, the executive vice-chairman of the China Association for Public Companies, suggested many times this year an improvement to the corporate governance of listed businesses to boost market confidence.

"The standards and high-quality of company operations are the basis for attracting long-term investment, increasing information transparency, protecting investors' interests and facilitating the healthy development of the capital market," said Li.

The public companies association was founded in February. It provides professional guidance and suggestions based on international seminars and research, aiming to improve cooperation in governance.

The poor performance of the share market has directly influenced the income of securities companies this year.

Among the listed 19 public securities, 15 saw a total gain of 463 million yuan in November, a decline of 23.53 percent from October, Wind Information said. Five listed securities companies suffered losses in November, the highest level this year.

An annual survey of 109 securities companies by KPMG China indicated that brokers are facing growing pressure and challenges as market competition intensifies and are increasingly looking at ways to widen their product offering and services.

The gross operating income of the sector declined 29 percent year-on-year to 136.3 billion yuan in 2011, while net profit dropped much faster at 50 percent to 39 billion yuan, the survey shows.

"Traditional brokerage accounts for 52 percent of the sector's gross income. This business saw its income fall 36 percent due to dwindling trading volumes and commission price wars," the KPMG report said.

Tony Cheung, a partner with KPMG China, said that the IPO systems will be further reformed, while securities companies will strengthen their governance structures and incentive mechanisms.

"These reform and innovation initiatives will help domestic securities companies to transform their businesses to enable long-term growth," he said.

The development of a multilevel capital market will accelerate because the top securities regulator is determined to deepen system reform, while at the same time it can promote more innovation of financial products, according to Bonn Liu, another KPMG partner.

"The securities companies' traditional business model needs to change, therefore, to meet the new realities," Liu said.

Confidence

The erosion of investor confidence has led to net fund outflows in the A-share market this year. In order to supplement the capital pool, the government has taken major steps this year to broaden the financial channels for foreign institutional investors by lifting quotas for qualified foreign institution investors.

According to the State Administration of Foreign Exchange, in November, seven new foreign investors were approved as QFIIs, raising the number of total qualified institutions to 199 as investment amounts reached $33.57 billion.

The QFII investment limit was raised in April to $80 billion from $30 billion, but it is still too tiny compared with the total tradable market cap in the A-share market of 15.5 trillion yuan.

"The participation of institutional investors, both domestic and international, should also grow over the medium term," said Wang from UBS.

"In the coming quarters, we do expect corporate earnings to recover, along with the economy. We also expect the authorities to continue to push for IPO reforms and improvement of disclosure and supervision, which should eventually help to improve market confidence," she added.

chenjia1@chinadaily.com.cn

 

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