China’s securities regulator plans to raise the minimum proportion equity funds should have in shares, a move that may drive investments into the worst-performing major Asian stock market in the past year.
A stocks fund will be defined as one that holds more than 80 percent of its assets in equities, according to revised industry rules posted on the China Securities Regulatory Commission Web site (CSRC). That compares with 60 percent now. The CSRC also plans to amend its rules so that a fund’s total assets cannot exceed 140 percent of its net assets.
“It will definitely be positive for the stock market” in the long run, said Daphne Roth, Singapore-based head of Asia equity research at ABN Amro Private Bank, which oversees about US$207 billion. “But this is a multi-year project and it’s still in its early days. I am still cautious on China stocks, as we may see downgrades in some company earnings.”
Chinese stock markets are shut for public holidays and will reopen on Thursday. The Shanghai Composite Index has tumbled 11 percent from its this year’s high on Feb. 6 amid signs that the economy’s recovery is stalling.
Historically, stocks funds invest between 80 percent and 90 percent of their holdings in equities, and currently 13.5 percent of the funds invest less than 80 percent, the Securities Times reported on Saturday, citing an unidentified CSRC spokesman.
The South China Morning Post said the change of rule could theoretically inject 200 billion yuan (US$32 billion) into the market, without citing anyone.
The CSRC is soliciting comments and suggestions on the proposed changes until May 26. Hao Hong (洪灝), managing director of research at Bank of Communications Co (交通銀行) in Hong Kong, estimates the new plan would add “a very small amount” of 30 billion yuan, based on his calculations, compared with daily trading volume of about 100 billion yuan.
“The authorities seem to be rather anxious to talk up the market,” Hong said in an e-mail interview yesterday. “Such moves can be perceived by the market as the urge to rush out initial public offerings. If so, it will be a drag on the market, rather than help.”