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Investors eye reform effects

Updated: 2013-11-20 06:42
( China Daily)

The strong rally of stock markets is more than a warm welcome to the promise of sweeping reforms Chinese leaders have announced.

The Shanghai Composite Index jumped by 2.87 percent to 2,197 points on Monday, amid rising optimism that the top leadership's reform pledges will bring about investment opportunities and sound returns for many listed companies. This optimism was echoed by other stock markets in Asia.

 Investors eye reform effects
 File photo by Xinhua.

The Shanghai rally also represents an urgent call by Chinese investors for a better functioning and rewarding stock market.

This benchmark index dropped by 1.83 percent last Wednesday when investors were generally puzzled by the lack of reform details in the newly released communique from the Third Plenum of the 18th Central Committee of the Communist Party of China.

Now, a 60-point resolution from that all-important meeting has excited the domestic stock markets.

Chinese investors do deserve a better-performing stock market. Five years after the global financial crisis, US stocks keep hitting record highs, largely because the Fed indicates it is in no hurry to rein in its super loose monetary policy.

Meanwhile, China's five years of the fastest growth among all major economies around the world have only lifted the Shanghai composite index by some 500 points from the bottom of 1,665 points to the current level which is about one-third of the previous peak.

As a result, most Chinese investors have not been able to share the fruits of China's growth story via the stock market. And the stock market has failed to assume its role in optimizing the allocation of resources.

With Chinese leaders vowing to make the most sweeping changes to the economy in decades, it is reasonable for investors to cast their vote of confidence.

If the market is to play a decisive role in allocating resources as the leaders have projected, China's stock market must serve as a more effective mechanism for channeling funds to the most competitive companies that can bring about maximum profits for shareholders.

Given the regulatory challenges in the stock market and difficulties facing the country as it strives for economic transformation, no one should expect too many quick returns from investing in Chinese stocks.

Yet Chinese leaders' determination to comprehensively deepen reforms has made the trend clear. And Chinese investors simply cannot wait for these reforms to gain more urgency.

(China Daily 11/20/2013 page8)