New | People's Bank of China calls for more reform to foster capital markets development
Central bank says development of legal infrastructure will be stepped up as mainland and HK stocks recover from sell-off and ready for new rally
The People's Bank of China on Friday called for a "healthy" development of the country's stock market, a day after a slide in mainland Chinese and Hong Kong equities seemed to have been arrested.
The securities and futures sector would deepen the State Council's push to foster a healthy development of the capital markets, centred on serving the real economy, the central bank said.
To maintain a stable and healthy development, market reforms and the building of legal infrastructure would be accelerated, it said.
"We fully realise the new economic situation has placed new demands on the mutual interdependence of the reform of our nation's capital markets and economic reform," the PBOC said its financial stability report.
Looking ahead, the report said, it would be easier for mainland chinese firms to list outside the country and there would be further improvements to the Shanghai-Hong Kong Stock Connect.
The report called for the inclusion of mainland Chinese shares in international indices to speed up their internationalisation.
The report also warned that if there were sharp falls in the securities markets, it might have a huge negative impact on the profits of securities companies.
On Thursday, the Shanghai Composite Index fell 6.5 per cent while the Shenzhen Composite Index plummeted 5.5 per cent.
The Shanghai index fell up to 4.1 per cent on Friday before closing with a 0.18 per cent loss. Shenzhen also fell, by up to 4.2 per cent but ended 1.32 per cent higher.
The Hang Seng Index fell 0.11 per cent or 30.12 points, while the H-share index lost 0.56 per cent or 79.19 points.
"The correction is the best way to raise investors' awareness of risk," said Ben Kwong Man-bun, a director of KGI Asia.
Gerry Alfonso, a director of Shenwan Hongyuan Securities, said: "Despite the recent turbulence, the demand for stocks seems to remain strong.
"After [Thursday's] correction, there was a lot of anxiety in the market and the early correction [on Friday] was likely caused by this anxiety, with investors afraid of holding stocks in a dropping market.
"Then a few sectors started to do well because they have many newly listed stocks, particularly the IT sector, which helped stabilise the market."
The mainland Chinese markets will see 23 initial public offerings next week, raising nearly 23 billion yuan, "which is a sizeable amount", Alfonso said.
About 8 trillion yuan in funds had been frozen in subscribing for next week's offerings, Kwong said.
"Eight trillion yuan is not a small amount. Investors will stay away because they perceive the IPOs will soak up liquidity," he said.
Louis Tse, a director of VC Brokerage, said the slew of offerings would cause the mainland Chinese bourses to be "in the doldrums and to see-saw" next week.
As for the Hong Kong market, it would be quiet, he said. After Thursday's correction, it would be "licking its wounds".
Following next week's offerings, the mainland Chinese market would continue its bull run for the rest of next month, according to Kwong.
In Hong Kong, the market should enjoy a rebound on more news of the Shenzhen-Hong Kong Stock Connect, the possible inclusion of mainland Chinese shares in the MSCI index and more stimulus measures from the central government, Kwong said.
The Hang Seng Index fell 3.1 per cent this month while the Shanghai Composite Index rose 3.6 per cent and the Shenzhen Composite Index edged up 0.5 per cent.
