Stocks rally as PBOC policy gets deferral

Chinese stocks closed higher on Monday as investor confidence brightened on the nation's deferral of the deadline to comply with revamped asset management rules, analysts said.

They called the deferral a reasonable move to deal with disruptions from the COVID-19 pandemic, adding that it will help smooth the transformation of asset management services and facilitate the financing of real-economy businesses.

The benchmark Shanghai Composite Index jumped by 1.75 percent, closing at 3,367.97 points on Monday. The smaller Shenzhen Component Index rose by 2.4 percent to 13,964.56 points.

The rally came after the People's Bank of China, the central bank, announced late on Friday that the country will extend the transitional period for the implementation of the new asset-management rules by one year to the end of 2021.

The rules, unveiled in April 2018, require financial institutions to revamp their asset management services to comply with a series of new regulations by the end of the transitional period, which originally fell at the end of this year.

The rules aim to eradicate principal-protected wealth management products－which at times have proved risky despite their name－as well as to reduce investment in nonstandardized assets and contain financial risks.

Due to the COVID-19 pandemic, however, the revamping task, which entails debt repayment, has faced mounting difficulties partly because some businesses that have struggled to survive the contagion may need to defer repayment, the PBOC said.

"Extending the transitional period as appropriate will alleviate the blow of the epidemic on the asset management sector and the pressure on financial institutions from the revamping task," said a PBOC statement, adding that the move will also facilitate financing for the real economy.

"If financial institutions drastically downscaled noncompliant wealth management products this year, financial risks could surge and hit the real-economy businesses relying on those products to obtain financing," said Dong Ximiao, chief analyst at XWBank, an online-only bank based in Sichuan province.

As the deferral eases the pressure faced by the real economy and financial institutions, it will help safeguard financial stability and spur healthy development of the capital market, said Kang Chongli, deputy dean at the research institute of Yuekai Securities in Guangdong province.

The extension will also avoid a bump in the disposal of noncompliant products from selling off a large amount of equity assets and putting pressure on the stock market, Kang said, adding that the move is "realistic" and in line with market expectations.

The PBOC statement added that the asset management industry has become healthier, with risks substantially contained since the new rules were released in 2018. The extension does not involve any adjustments of regulation standards of the rules, nor does it indicate a shift in direction of asset-management business reform, it said.

Financial regulators will supervise progress of financial institutions' reform tasks on a quarterly basis, the central bank said. As for institutions that cannot complete the task by the end of 2021, regulators will adopt a case-by-case approach to ensure implementation of their reform plans.

Data compiled by Zheshang Securities indicates that 43 percent of the outstanding value of bank-offered wealth management products was not principal-protected by the end of 2019, up from 27 percent by the end of 2018.