Stocks not quite ready to run with the bulls

Experts say regulatory reforms still needed for market to take off

Last week, the benchmark Shanghai Composite Index rose on five consecutive trading days, jumping from 2,217.20 points on August 29 to close at 2,326.43 points Friday. Many are wondering whether it's the beginning of the bull market they have been expecting for years. The Global Times interviewed three experts to get their views on this topic.

Su Peike, chief research fellow at the Public Policy Research Center of University of International Business and Economics

As many know, the public, including the media and ordinary citizens, has been intensely discussing whether A shares are about to enter a bull market. The Chinese mainland stock market has indeed been sluggish for several years, leaving every investor yearning for positive news that will boost market sentiment and lift investor confidence. However, without an improved and complete market management mechanism, it will be difficult for a true bull market to emerge on the mainland.

We need to discover what problems are holding back a bull market and then find solutions. For instance, regulators still need to create regulations to ensure an even playing field for every investor.

Some people have high expectations for the upcoming program that allows investors to directly trade between the exchanges in Shanghai and Hong Kong. However, the trading scale is quite restricted, so the program won't have much effect on A shares or H shares. The program might encourage some capital to flow into A shares over the short term, but it cannot support a long-term bull market.

It takes a long time for an economy to recover its vitality. Without well-performing companies, there is nothing to drive the development of the stock market.

Regulators need to create more opportunities for promising high-tech and emerging industries. Also, they need to strengthen supervision over illegal trading and establish a transparent information disclosure platform to protect investor interests.

Dong Dengxin, director of the Finance and Securities Institute at Wuhan University of Science and Technology

On September 3, the trading volume on both the Shanghai and Shenzhen stock exchanges reached 403.3 billion yuan ($65.33 billion), the highest since November 2010.

The rising trading volume shows investors' growing confidence in the stock market as more and more social capital pours in. In addition, the government continues to push ahead with measures such as IPO reform and Shanghai-Hong Kong Stock Connect, which have sent positive signals to the market.

Foreign investors are also hurrying to put more of their funds into A shares. In the second quarter, they opened 68 new QFII accounts, an increase over the 50 accounts that were opened in the first quarter, according to China Securities Depository and Clearing Co Ltd.

In addition, the sluggish real estate market has forced many investors to reallocate their investment funds. As a result, they might shift a portion of their funds from property to stocks.

All of these positive factors will soon help create a stable bull market. In other words, the stock market will not experience huge fluctuations like it had in the past. A stable market is the sign of a mature market.

Under these circumstances, ordinary investors also need to change how they invest because they can no longer depend on speculation to earn huge profits over a short period.

Zhou Junsheng, an economics commentator

It's too early to say a bull market is on the way. There are too many uncertainties in the stock market. No one can make specific predictions.

For sure, ordinary investors are glad to see the stock market recover. It boosts investor sentiment and brings more opportunities for them to profit from the market.

But investors need to adopt a proper investment strategy because they can still lose money in a bull market.

Generally speaking, many factors have contributed to the recent rise in the stock market. Last year, the central government called for the market to play a decisive role. Echoing the central government, the top securities regulator has pushed ahead on a series of stock market reforms since 2013, including IPO reforms.

Although it's difficult to say if the government's measures have had any substantial effect on the stock market, at least they show the government is serious about regulating the market and creating more opportunities for promising small and medium-sized companies.

Also, investors have high expectations about the direct trading between the Shanghai and Hong Kong exchanges, which is expected to begin in October. Investors think the mechanism will benefit the Chinese mainland stock market by bringing in more overseas capital.

All of these factors are positive signs for the Chinese mainland stock market. But regulators still need to move ahead with more reforms to improve the trading mechanism, close loopholes and strengthen oversight to curb illegal trading activities.