Wednesday, March 21, 2007

China Calling Again

Similar to the blog posting below, I think there will be a lot more rapid pronouncements to tighten liquidity and regulations to prevent a complete bust-up. It is almost inevitable that there will be some form of substantial correction in stock and property markets in the future. All the government can do is to mitigate the impact and trickle down effects. I think it is excellent foresight on their part to start the tightening process even now.

China's Securities Regulatory Commission has now barred listed companies from using share sale proceeds to invest in stocks. Companies are also barred from buying derivatives and convertible bonds with the share sale proceeds. The move will force companies to reinvest wisely to build up business or return them to shareholders as dividends. Companies who are actively investing in stocks may be too dependent on gains from share trading. The contagion effect from a market crash could seriously weaken these companies' balance sheet.

To show how serious they are, China's cabinet has already approved a task force last month to clamp down on illegal share sales and other banned activities. While many retail players and even some institutional investors may not like what the authorities are doing, it is for the betterment of the market and to lessen the effects of boom-bust cycles. It is exactly this feeling of complacency among most investors which requires the government to execute "crisis-management" even now. Let's hope they are not too late.


sopskysalat said...

Hi Dali,

Great insight again! I would think too that equities will likely to be in pressure with all the measures going hard against them.

Then, with the huge population in China and low saving rate, can we imagine those monies from country sides are finding its way to the stock exchange in search for easy monies. Chinese are great punters and gamblers! Are they really concern with these measures? I would think as a whole, the monies would continue to be poured into the equities. Institutional side, are they a lot of monies in SSE or Shenzhen? I guess they are parked in HK instead. Thus, whether we are seeing a severe correction in SSE/Shenzhen, the chance is not high but possible. As you mentioned earlier, the real China is in HKSE, so they are the leading indicator to monitor.

If we talk about the measures, aren't overseas companies with heavy investment in China affected too? Thus, we are all related one way or the other. Chinese shares listed in SGX, HKSE will be affected similarly...

giggsy said...

Quoted "Yuan will be allowed to appreciate more for the rest of the year. What a good investment option"

I admire your blog very much, showing much value-added details and news.

mm mind if I ask, what made you said that for the above statement?



sopskysalat said...

yet another blow to the chinese.. US imposed further tariff on more chinese goods!