A-share liberalization to boost confidence

Nobody expected an avalanche of liquidity from Hong Kong, Taiwan and Macao investors on the first trading day under a new rule allowing them to invest directly in the Chinese mainland stock market.

But analysts said it marked the start of a new effort in diversification that could become an important market force.

The opening of China's A-share market to Hong Kong, Taiwan and Macao residents will introduce capital to the mainland stock market and also boost investors' confidence, they said, although analysts added that the full impact could take much longer to be felt.

From Monday, the China Securities Regulatory Commission allowed Hong Kong, Taiwan and Macao residents living on the mainland to open trading accounts for the A-share stock market, or yuan-denominated stocks.

Some analysts said the new rule could generate billions of yuan in new investment funds, while others cautioned that the expectation was too high because the A-share market is considered by many investors outside the mainland to be too risky and immature.

But mainland brokerages have been actively pitching for potential customers.

Shenyin & Wanguo Securities told China Daily: "About 450,000 Hong Kong, Taiwan and Macao residents are living on the mainland. Most of them have legal renminbi income, and many are high net worth individuals. The new rule will introduce more investors and more capital into the market."

The Shanghai Securities Journal said the move will broaden the channel for capital to return to the mainland market from Hong Kong, Macao and Taiwan. It will boost the two-way flow of capital between the mainland and offshore regions, together with a forthcoming QDII 2 (Qualified Domestic Institutional Investors 2) project allowing mainland investors to open brokers' accounts in Hong Kong to trade on the city's stock exchange.

A shares were previously off-limits to foreign individual investors. They were only allowed to trade B shares in US dollars in Shanghai, or in Hong Kong dollars in Shenzhen.

China has increased quotas for foreign institutions, pushed for higher dividend payments, tightened rules on de-listing companies and cut trading costs to boost the stock market, which has long been performing below expectations.

A survey by the China Securities Investor Protection Fund shows that investors have become more pessimistic over the prospects for the country's stock market, with an investor confidence index compiled by the fund dropping to 56.8 percent in March, 7.9 percentage points lower than in February.

The mainland stock market fell slightly on Monday after local governments announced detailed plans over the weekend to curb the property market, implementing the central government's regulatory plan announced earlier last month.

The Shanghai Composite Index fell 0.1 percent to 2,234.40. Turnover was 67 billion yuan ($10.8 billion), down from 73.4 billion yuan on Friday, as the three-day Qingming Festival holiday approaches.

Zhan Shihua, an analyst with Zheshang Securities, said: "The mediocre economic recovery, concern over tightening policies to curb the property market, and also resumption of IPOs are the main factors that led the correction of the market."

A report released by CITIC Securities on Monday said: "Considering that investors' expectations on an economic recovery and on monetary policy are both becoming neutral, we think it is most likely that the Shanghai Composite Index will fluctuate in a range from 2,100 to 2,500."