Bearish trend persists on capital markets

Banking, property shares lead slump on bourses as fund managers book profits

Equities continued their downtrend on China's A-share market on Friday, amid the sharp plunge in valuations this year.

The benchmark Shanghai Composite Index fell by 0.79 percent to close at 2516.25 points on Friday, and ended the week 2.99 percent lower with a four-day losing streak. The smaller Shenzhen Component Index declined by 1.2 percent to 7337.60 points, while the ChiNext Index, China's Nasdaq-style board of growth enterprises, was down 0.6 percent to 1270.3 points.

Property and bank shares led the decline amid profit-taking on Friday. The Shanghai Stock Exchange 50, dubbed China's "Nifty Fifty" index, fell 1.23 percent to 2306.15 on Friday.

Market insiders said some fund managers were booking profits from the blue-chips to enhance returns for their funds for the full year. Some other fund managers chose to sell blue-chip shares to augment their liquidity positions for fund redemptions.

"This week's drop in A shares correlates with investor concerns about downside risks for the economy in 2019, as well as fears about contagion risks from overseas markets," said Liu Chunsheng, an associate professor at the Beijing-based Central University of Finance and Economics, and deputy dean of Blue Source Capital Research Institute.

On Thursday, the financial stability and development committee under the State Council, China's cabinet, said after a meeting that China's capital market has long-term investment value, with the risks priced in and mitigated.

The committee also highlighted five areas for capital market reforms, including enhancing the quality of listed firms, strengthening information disclosure, reducing administrative intervention in market transactions, fostering medium and long-term investors, and achieving better communication between regulators and investors.

Resonating with the remarks, Liu said there is no doubt about the market's long-term investment value and the current low valuations are in no way an indication of the actual growth prospects.

Speculative trading has been the bane of the A-share market as investors are not fully aware of the long-term profit opportunities, he said.

"The situation will change with the strict implementation of capital market reforms. Some of these reforms have already been implemented, though it will take time for the results to percolate down to the market," Liu said.

Xu Gao, chief economist of Everbright Securities Asset Management Co, said: "With the capital market reforms being implemented in a phased manner, we will see a recovery from the bearish phase," Xu said.