| The Market Calls for Responsible Institutional Investors |
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| 2009-08-26 16:35 Workers’ Daily |
As a Chinese saying goes, help comes from all eight points of the compass for the one place in need. At the night of August 20, six provincial TV stations jointly staged a disaster-relief gathering to solicit donations to disaster-stricken Taiwan people, receiving donations of over CNY310 million from all walks of life. Geely Holdings Group donated CNY1 million right on the spot, becoming one of the first Chinese automakers to make donations to Taiwan people in need. “Although we are still an infant in auto industry, we know what corporate social responsibility means.” Said Mr. Li Shufu, President of Geely.
While Taiwan people are suffering a natural disaster, investors in A share market are undergoing man-made calamities. Over the past two weeks, the market has been full of tears and sighs, with four unexpected steep falls in price coming in succession. August 17, Shanghai Index was down drastically by 5.79%, the highest single-day fall in the year. Two days later, Shanghai Index dropped below the important supporting point of 2800 before bouncing back the next day, with a remarkable rise of 4.52%. Another steep fall has followed this Tuesday, causing a huge fluctuation in the market. The sharp fall and rise in the market delivered a heavy blow to the just-restored confidence of individual investors.
Undoubtedly, the sharp rises and falls in the A share market is by no means a result of average individual investors. Hence, public fund investors, social security funds, insurance funds and the regulatory authority ought to faithfully shoulder their inborn responsibilities, including social responsibility.
A story about two aunts has become very popular recently on the internet: one of the aunts is a resident in Beijing and the other in Xi’an, both of whom love buying stocks. Every time Xi’an aunt enters the market, Beijing aunt starts leaving the floor. This story suggests that those funds pursuing absolute profits are just like Beijing aunt. There are two kinds of funds in the market at present: one pursues absolute profits, including social security fund, insurance fund, corporate annuity and private placement fund, while the other hunts for relative profits, including public fund.
Statistics show that there was a net outflow of CNY664 million social security fund from Shenzhen Stock Exchange in this July, the highest monthly net outflow in the year of 2009, with real estate sector being the key subject of bear sales. On the same day when these statistics were printed on the newspaper (August 17), Shanghai Index dropped below 3000 and then 2900 in a row. The outgoing CNY664 million social security fund takes up only a small percentage of the total social security fund being traded in the market, a figure that is not sufficient to trigger off the steep fall, if looked at solely from the quantitative perspective. However, as social security fund is the national player, which is looked upon by the market as the wind cock of the government policy, this outflow is being heavily criticized for irresponsibility and speculation.
According to the source, in the first week of this August when the public funds were flooding into the market, those funds pursuing absolute profits began leaving the market as early as Shanghai Index reaching 3000 points. Knowing the escape of social security fund from the market, the public funds felt like being fooled and vented itself like a little child by wantonly underselling their holdings.
Ironically, before the underselling of the shares holding by the public funds, analysts continuously included more industrial sectors in their list of periodical recovery and raised their expectations for these sectors and enterprises, even if their P/E ratio had approached 40. After the occurrence of underselling rush, however, they bruited about their argument that it was the insurance funds and private funds that triggered off this round of downfall.
It is well known that institutional investors are professionals and the force that preserves the stability of the stock market. However, the inconsistency between the words and deeds of institutional investors led the general public to doubt the professionalism of institutional investors.
Specialized investors are supposed to make decisions through basic analysis, technical analysis and policy analysis. Recently, the general public has been concerned about whether the monetary policy will be readjusted, that is, whether the banks will tighten their credit scale in the second half of the year. Although the conclusions from various sources vary from each other, the author believes whether the banks will tighten their credit scale will have certain impact on China’s real economy and the business performance of certain listed companies, but the driving force behind the bounce-back of Shanghai Index from 1664 to 3478 is not about the performance of the listed companies but the fluidity of A share market. More precisely, it is because some credit funds flowed into the A share market through certain channels.
Major commercial banks in the country began inspecting their in-house credit funds in succession since the early July, and China Banking Regulatory Commission also took a series of measures to exert greater control over the destination of credit loans. As disguised entry of credit loans into the A share market has been brought under control to a certain extent, credit loans that previously entered the A share market through various channels are expected to return to the place where they belong to.
Undoubtedly, the funds in the market would not have become problematic if the profitability of the listed companies continuously improves. As of August 20, a total of 879 listed companies from Shanghai and Shenzhen Stock Exchanges published their half-year financial reports, a decrease of about 18% over the same period last year but a rise of as much as 63% over the last month. According to Morgan Chase statistics, as the economy gradually recovers and with the rather low level of profitability in the second half of 2008, the profitability in the third and fourth quarters of 2009 will rise instead of falling. Therefore, at the enterprise level, the profitability of companies will continue improving.
With respect to government policies, when the market slumped with fluctuations, the instantly approved release of index funds brought relatively good news to the market, leading to the expectations for market trend towards stability. The rapid replenishment of funds stabilized the resource shares and index shares. However, if the institutional investors cannot shoulder their professional responsibility, the rise will not last long.
Mr. Li Shufu pointed out that implementation of social responsibility is the primary duty of businesses, producing what the market needs is the primary responsibility of the enterprises and that doing something amid the ongoing financial crisis is an important mission of the business community. At this moment, when the market is vibrating at the level of 3000 points, institutional investors should make a difference and contribute their professional advantages, because stabilization of market itself is the inborn duty of institutional investors.
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