Slow Start: The Shanghai Composite Index has lost 6.4% so far this year, one of the worst performers among 93 global benchmark indexes that Bloomberg tracks.
CHINA’S A-SHARE markets got more than a whiff of better times to come in a Securities Times report saying that a soon-to-be-launched pilot scheme for margin trading would potentially inject some 90 bln yuan into stocks in the program’s first stage.
This surely comes as good news to economic regulators and the securities watchdog as the key Shanghai Composite Index has lost 6.4% so far this calendar year, one of the worst performers among 93 global benchmark indexes that Bloomberg tracks.
The Chinese language piece cited analyst Fan Xiangpeng with Sinolink Securities as saying that brokerages would inject dedicated funds worth between 30% to 50% of their net asset value into the pilot project.
He also forecast that between 40-60 bln yuan would be injected into A-shares with the first group of six approved brokerages to be allowed participation in the pilot scheme.
And with the second batch of brokerages soon expected to receive participatory authorization, the markets would receive a total of some 90 bln yuan from the pilot program.
Margin trading is the practice of investors borrowing money from brokerages to put into the stock market.
Healthy Balance: Officials are hoping to bring more money into A-shares without getting the triple digit P/Es common on the GEM board.
The China Securities Regulatory Commission (CSRC), the country’s bourse watchdog, announced last week that the following brokerages would be allowed to take part in the pilot program for margin trading:
CITIC Securities, Everbright Securities, GF Securities, Guosen Securities, Guotai Junan Securities and Haitong Securities.
The six approved brokerages are likely to begin accepting margin trading account opening applications from investors by as early as March 29, official local media reported.
The securities regulator said last week that it would slowly broaden the pilot program, but that the pace and breadth of the expansion depended on how the market reacted.
If response from investors and brokerages is positive in the early stages of the program, this would likely result in the securities watchdog allowing margin trading to bring even more brokerages into the practice – and more funds into the A-share markets.
Eagerly waiting on the sidelines for CSRC approval to engage in margin trading are five other candidates.
The are: China Galaxy Securities, China Merchants Securities, Huatai Securities, Oriental Securities and Shenyin & Wanguo Securities.
China’s State Council, the country’s cabinet, announced earlier this year that it had also approved "in principle" the launch of index futures, while at the same time authorizing the country’s A-share markets to begin the licensing process for the upcoming margin trading pilot project.
The introduction of the two trading practices is intended to boost the stable and healthy development of the capital market, a CSRC official said at the time.
The moves come after the Shanghai Composite Index surged 80% in 2009 following a decidedly bearish 2008 in which the benchmark indicator fell 65%.
"This is a milestone in the development of the country's capital markets," said Xu Ling, general manager of Haitong Futures, adding that it would help moderate “wild fluctuations" in valuations.
Perhaps Mr. Xu’s praise for the government’s pilot program made its way to the right ears, as his brokerage has since been one of the lucky six to be authorized participation in the margin trading scheme.
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