The Chinese market may have stabilised temporarily on Thursday after measures from the government, says Ben Bei, director, chief Hong Kong/China strategist at CIMB Securities.
Around 40 percent of the listed companies in China had suspended trading on Wednesday. Bei says the stock regulator will now allow companies to remain suspended from trading for long. He adds it may not be a bottom yet for the overall China index.
Below is the verbatim transcript of Ben Bei's interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.
Latha: Today the Chinese markets have appeared to put a floor up 2 percent, what should we believe is the mayhem over or is this just a temporary respite?
A: Today's market has stabilised a little bit, thanks to a lot of stabilising policies and the measures from the government over the past few days. I think this should temporarily stabilise but bear in mind, I think it may not reach to the bottom yet for the overall index because in China we have companies that have suspended for trading but more than half of the companies are not suspended -- they didn’t fall in the past two weeks so that is what hits on the index overall but for companies suspended for trading, I think there maybe some good quality names, they should have hit the bottom yesterday already.
Sonia: Out of the 40 percent of the companies that had suspended their trading. Is there any news on whether any of them have resumed trading this morning or not?
A: I do not think so, but there is some news on media that stock exchanges like them to resume trading as soon as possible. Actually they will not allow trading suspension for some ordinary reasons now unless it is very necessary otherwise half of your companies suspended for trading on stock exchanges but actually that will put near-term pressure if those guys resume trading for the index level.
Latha: In your estimate when things smooth enough that these companies remove the trading curbs and there is no mayhem. Does it take a month-two months, how long?
A: I do not think it will take long because the government is taking massive measures trying to stabilise the market. I think the most effective measure is that they are using the China Securities Finance Corporation (CSFC) as a stabilising form of function and this company is now buying equities from secondary market directly and also subscribed for mutual funds and this morning we saw the news that People's Bank of China (PBoC), the central bank give the relending liquidity support to this company. So this stabilising form of function could be able to stabilise the market as long as PBoC continues to provide liquidity support. So even though this company resumes trading, we will see the bottom in one-two weeks.
Latha: But, should we still worry about some long-term problems for instance, retail investors getting really scared away, capital account convertibility getting postponed even more? There was big expectation that the Morgan Stanley Capital International (MSCI) will expand to allow A-shares of China. All these processes get postponed, do you think?
A: This turmoil happened in the past two weeks actually we had some structural issues of the A-share market especially for the investor structure is still dominated by the retail investors who are very sentimental and will rush to the market when it is rallying but getting very scared when the market is falling. But my view is that at the current stage the imminent issue for A-shares now is to resolve the deleveraging process.
In the past two weeks we saw the snow-ball effect. It was rather marginal financing investors or off-book financing; they are forced to sell when the market falls. So, actually that has created a snow-ball effect and up till now, I think we still have about 1.5 trillion margin financing balance. And a lot of larger shareholders actually use their shares to add collateral to the banks to get along and then reinvest into the A-share market. And all this leveraging issues are still a potential bomb for the A-shares. So, that is why the government trying to stabilise the market. Otherwise it will hurt the banking system in my view. I think that that is imminent thing we need to worry about.
In the long-term I believe, yes, we need to try to improve the investor structure of the A-share and try to educate retail investors more about the value investing methodologies and about and to see how to open the market and eventually get into the MSCI benchmark index.
Latha: But for the moment do you think things have stabilised?
A: If the stabilising fund that is the CSFC keeps buying equities and subscribing mutual funds and if they have the liquidity support from central bank then they can stabilise the market within, in my view, could be even one-two weeks.
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