Directing household savings to equities set to boost capital market

More vibrancy can be expected in the Chinese capital market next year as more household savings gets channeled into investment, said experts.

The wealth management function of the capital market will help convert more household savings into investment and boost domestic demand, the China Securities Regulatory Commission said in its 2021 work plan announced on Tuesday.

Buoyed by the development, the benchmark Shanghai Composite Index rose by 0.76 percent on Wednesday to 3382.32 points, while the Shenzhen Component Index was up 0.96 percent at 14,015.02 points.

This is the second time this year that the financial regulators are stressing the need to direct household savings into the capital market. In January, the China Banking and Insurance Regulatory Commission said that more household savings should be efficiently channeled into inflows in the capital market in the long run.

Data from the China Securities Depository and Clearing Corp showed that the A-share market attracted nearly 1.53 million newly registered investors in November, up by 84.76 percent on a yearly basis. The trading value realized on the Shanghai and Shenzhen bourses rose by over 50 percent last month.

China Merchants Securities, an investment firm, expects more than 1 trillion yuan ($150 billion) of capital to flow into the A-share market next year, with consumption, technology and the recovered cyclical industries being the promising investment opportunities.

Shenwan Hongyuan Securities' chairman Chu Xiaoming said capital market infrastructure should be perfected so as to attract more household savings. The registration-based initial public offering mechanism is an important breakthrough as pricing is determined by market entities. A stable and prosperous capital market can therefore direct household savings to the capital market, he said.

The CSRC also called for more efforts to develop mutual funds.

Public information from the Asset Management Association of China showed that the value of mutual fund products hit a historic high of 18.75 trillion yuan at the end of November, which was 27 percent higher than the figure in 2019. During the first 11 months of the year, newly issued equity funds valued at 2.7 trillion yuan accounted for over 67.6 percent of all the newly issued mutual fund products this year.

Due to stringent restrictions preventing housing market speculation, a large number of household savings has already been directed to the capital market, as seen in the surge in mutual fund investments, said Yang Delong, chief economist of Shenzhen-based First Seafront Fund.

"More household savings will enter the capital market via mutual funds next year, which will propel higher mutual fund product issuances. Value investment will thus become the mainstream in the market. Mutual fund managers should also shoulder more responsibility to create more long-term returns for investors," he said.

To direct more household savings into the capital market is one of the six major tasks that the CSRC will focus on next year. On top of that, various mechanisms and systems within the capital market should be improved to better support technology innovation. Transmission mechanisms between the currency policy, capital market and the real economy should be further smoothened, according to the CSRC.

Meanwhile, capital market infrastructure needs to be consolidated further to step up reforms. Financial innovation should be conducted under prudent supervision to avoid sprawling capital expansions. The mechanism to monitor, predict and manage risks should be optimized to maintain stable operations of the stock and futures markets, said the CSRC.