China’s securities regulator plans to raise the minimum proportion equity funds should have in shares, a move that may drive investments into the worst- performing major Asian stock market in the past year.
A stocks fund will be defined as one that holds more than 80 percent of its assets in equities, according to revised industry rules posted on the China Securities Regulatory Commission website. That compares with 60 percent now. The CSRC also plans to amend its rules so that a fund’s total assets can’t exceed 140 percent of its net assets.
“It will definitely be positive for the stock market” in the long run, said Daphne Roth, Singapore-based head of Asia equity research at ABN Amro Private Bank, which oversees about $207 billion. “But this is a multi-year project and it’s still in its early days. I am still cautious on China stocks, as we may see downgrades in some company earnings.” Chinese stock markets are shut for public holidays and will reopen on May 2. The benchmark Shanghai Composite Index (SHCOMP) has tumbled more than 10 percent from its 2013 high on Feb. 6 amid signs that the economy’s recovery is stalling. The nation’s industrial profits growth fell in March from the first two months, as banks from Goldman Sachs Group Inc. to JPMorgan Chase & Co. cut their estimates for full-year expansion.
Historically, stocks funds invest 80-90 percent of their holdings in equities, and currently 13.5 percent of the funds invest less than 80 percent, the Securities Times reported on April 27, citing an unidentified CSRC spokesman. The South China Morning Post said the change of rule could theoretically inject 200 billion yuan ($32 billion) into the market, without citing anyone.
China’s domestic stock market is valued at $3.06 trillion, making it the world’s fifth largest, according to data compiled by Bloomberg.
The CSRC is soliciting comments and suggestions on the proposed changes until May 26.
Separately, a CSRC spokesman said in a press conference on April 26 that overseas strategic investors, or Qualified Foreign Institutional Investors, aren’t selling shares on a large scale, even as they downgraded their view of the Chinese economy and market, according to the Securities Times.
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