Experts reassure curbing risks will strengthen market and yuan internationalization
China's stock market and yuan reacted differently to the conclusion of a two-day financial meeting over the weekend. Experts asserted that the meeting will benefit the market in the long run and that any short-term fluctuations should not cause concern. They also noted that the chance of a sharp depreciation of the yuan is slim, while the internationalization of the Chinese currency will be pushed forward in a stable pace.
China's stock market saw declines on Monday, the first trading day after the country concluded a two-day financial work meeting on Saturday, while the yuan currency strengthened against the U.S. dollar.
The benchmark index in Shanghai declined 1.43 percent while the tech-heavy start-up board ChiNext tumbled 5.11 percent to a two and a half year low.
The Shanghai index and ChiNext on Tuesday closed up 0.35 percent and 0.67 percent, respectively, which experts said reflects their views that Monday's drop is just a short-term fluctuation and will not last for long.
The People's Bank of China, the nation's central bank, lifted the central parity rate of the yuan to 6.7562 against the U.S. dollar on Monday, according to the China Foreign Exchange Trade System. The yuan is allowed to rise or fall by 2 percent from the rate it currently stands at in the spot market.
Some investors attribute stock decline to policy messages conveyed from the two-day National Financial Work Conference which ended on Saturday.
The meeting has been held every five years since 1997, which is believed to set the tone for financial reforms in the years that follow.
It's reasonable to say that the stock market and yuan performed differently as messages of deleveraging sent from the meeting indicated that the market is likely to hold up in the short term. Meanwhile, the conference also signaled maintenance of neutral and stable currency policy, experts noted.
It benefits the market for a long term and curbs short-term speculations in the financial sector, Xu Hongcai, deputy chief economist at the China Center for International Economic Exchanges, told the Global Times on Sunday.
During the meeting, three agenda points are usually highlighted, including ensuring the financial sector better serves the real economy, containing financial risks and deepening financial reforms, according to Xinhua News Agency on Saturday.
Unnerved by deleveraging
To contain financial risks, deleveraging is the priority resolution for policymakers. During the two-day meeting, the central authorities urged to continue deleveraging the economy via a prudent monetary policy and to give priority to reducing leveraging in State-owned enterprises.
"The stock market slump is an overreaction to the message of deleveraging," because the negative impact would not last for long, Zhou Yu, director of the Research Center of International Finance at the Shanghai Academy of Social Sciences, told the Global Times on Monday.
"Ultimately, deleveraging will benefit the stock market, as speculative capital will withdraw from the market due to the government's strong attitude to curbing financial risks," Zhou said.
Dong Dengxin, director of the Finance and Securities Institute at Wuhan University of Science and Technology, echoed this opinion.
"Many listed companies hope to raise funds or get high returns through mergers or private placement in the capital market rather than focusing on their main businesses. Speculative activities like that have disturbed the market," said Dong.
