19 October 2017
Zennon Kapron

Asia Pacific Financial Service

Zennon Kapron - Kapronasia

59Posts 244,316Views 10Comments
Asia Financial Services

Asia Financial Services

Covering all aspects of financial services in Asia from banking in China to algo trading in Japan.

Insurance companies to kick-start Shanghai Stock Exchange?

10 January 2014  |  3073 views  |  0

The Shanghai Stock Exchange has been in the doldrums for the past couple of years and was the worst performing Asian exchange of 2013. Dismal performance and increasing questions about the transparency and 'fairness' of the mainland's largest market, have virtually erased the optimism that drove the market to record setting heights in the early 2000s.

In an effort to kick-start the market, the China Securities Regulatory Commission is in the process of re-opening the IPO stream that has been virtually shut down since the end of 2012. One of the big questions though is market liquidity – is there enough to support new IPOs and even then, will the IPOs further stretch already sparse liquidity? Already there have been failed listings in Hong Kong and Shanghai as investors have been reluctant to move back into markets.

Potentially in another effort to get the market moving and inject liquidity, Beijing, through the China Insurance Regulatory Commission (CIRC), will permit insurance companies to invest premiums from older policies into select blue-chip stocks through a trial program. This follows another announcement from the CIRC indicating that pension funds would be allowed to invest in the small-cap ChiNext exchange hosted in Shenzhen, which is actually potentially a bubble as P/E ratios have been increasing rapidly. 

Unfortunately, the move does not really address the underlying confidence of Chinese investors. Most of the investors in Shanghai’s market are retail and not institutional, so although investing in the markets were a virtual sure bet a decade ago, investors in China tend to be relatively new to capital markets, so are a bit hesitant to get back into a market where the index at one point grew 500% to more than 6,000 and then fell within a year to 1,700. What is starting to help though are the policy decisions and reforms happening behind the scenes.

And that’s really what needs to continue. The IPO market is opening up with IPO screening responsibility moving from the regulators to the market. International credit rating agencies are being allowed to setup in the new Shanghai Pilot Free Trade Zones. Short-selling is expanding and stock options are nearing.  The question though is whether the efforts will be enough to convince Chinese investors to start investing longer term in larger blue-chip companies.

As Beijing continues reforming the market, well-capitalized banks are a critical component of future industry growth and stability especially in an economy that has been too reliant on debt financing. With increasing regulation and reform on shadow-lending, getting the Shanghai markets in order is really a priority going forward.

Nevertheless, in the short-run, we don’t believe that the changes mentioned above will have much impact. Investors are still waiting to see the effects of the re-opening of the IPO market and the funds coming in via the insurance companies will be very limited at least to start.

Time heals all wounds - let's hope it can do the same with Chinese retail investor confidence. 

Comments: (0)

Comment on this story (membership required)

Latest posts from Zennon

What Apple Pay means for China

18 September 2014  |  2868 views  |  1 comments | recomends Recommends 0 TagsMobile & onlineGroupFuture Finance

China Bitcoin Exchanges 2.0

24 July 2014  |  2943 views  |  0 comments | recomends Recommends 1 TagsBlockchain

Why you should watch China's banking industry in 2014

16 January 2014  |  2842 views  |  0 comments | recomends Recommends 0 GroupFuture Finance

Insurance companies to kick-start Shanghai Stock Exchange?

10 January 2014  |  3073 views  |  0 comments | recomends Recommends 0 GroupAsia Financial Services

Of Bitcoin ATMs and regulation in Asia

09 January 2014  |  2395 views  |  0 comments | recomends Recommends 0 TagsBlockchainGroupAsia Financial Services

Zennon's profile

job title Founder
location Shanghai
member since 2007
Summary profile See full profile »
Zennon Kapron is the founder and director of Kapronasia. Kapronasia provides research, consulting, sales, and marketing services to technology companies doing business in the Asia Pacific financial s...

Zennon's expertise

Member since 2007
59 posts10 comments
What Zennon reads

Who's commenting on Zennon's posts