Market swings cannot affect economy much

PBOC, economists and fund managers see light at the end of COVID-19 tunnel

Short-term market fluctuations will not undermine China's economy, given its potential for growth and development backed by a number of supportive policies, the country's top financial regulators and industry experts said on Tuesday.

The People's Bank of China, the country's central bank, said in a notice on Tuesday that recent fluctuations in the financial market can be largely attributed to the temporary weakening in both expectations and investor sentiment.

The benchmark Shanghai Composite Index shed 1.44 percent on Tuesday to close at 2886.43 points. The index plummeted 5.13 percent on Monday to go below the 3000 mark. The Shenzhen Component Index fell by 1.66 percent on Tuesday, following the 6.08 percent plunge on Monday.

Analysts from Sealand Securities described the recent market nosedive as "investors letting out their sentiment". The valuations of major indexes have approached historic lows and the investment value of the A-share market has thus emerged. Once the COVID-19 pandemic is contained effectively, effects of the policies to stabilize the economy will become more pronounced. The GDP growth rate is expected to reach 5 percent in the second quarter, they said.

The PBOC stressed in its Tuesday notice that it will continue to support the smooth operation of logistics companies and help stabilize the overall supply chain, in order to minimize the negative impact of the pandemic on the economy.

Apart from the two relending facilities launched earlier this month to boost technological innovation and elderly care services, the PBOC will provide 100 billion yuan ($15.4 billion) of relending to support coal development and promote energy storage capabilities.

More relending facilities will be provided to agricultural, civil aviation and small and micro-sized enterprises. Overall market liquidity will be maintained at a reasonable and ample level, the PBOC said.

The PBOC will also help advance the rectification work at major platform companies by sticking to market-based, legal and international practices. It will make more efforts to ensure that the stable monetary policies can better serve the real economy, with emphasis on industries and enterprises hit hard by the pandemic.

China's economic fundamentals are sound at present and the GDP growth potential is huge, said the PBOC.

In light of the resurgence of COVID-19 cases in some parts of China, the country's consumption may bottom out in the short term but a rebound will likely follow, said Lian Ping, chief economist at Zhixin Investment, at an online conference on Tuesday.

On Monday, the State Council, China's Cabinet, issued a guideline, calling for more efforts to promote the orderly recovery of consumption and stabilize consumer spending.

Lian further predicted that the real estate market will bottom out soon and its negative impact on investment and consumption will gradually subside. Assisted by supportive monetary policies, the country's fiscal policies are expected to play a bigger part in driving up domestic demand. China's exports are still resilient and the GDP growth target of around 5.5 percent this year is still attainable, he said.

Salman Ahmed, global head of macro and strategic asset allocation at Fidelity International, said that positive signs have emerged in China despite some uncertainties. Constructive policies and favorable financing conditions will help improve the Chinese economy, especially in the second half of the year, he said.