Investors to keep an eye on economic policy shifts

Stock investors at a brokerage in Fuyang, Anhui province. [Photo/China Daily]

Pledge to continue deep reforms by leadership would boost the markets

Investors will be watching closely to see if China's leaders adopt "aggressive policies" at the Central Economic Work Conference in December.

Analysts have pointed out that the annual event in Beijing usually sets the economic tone for the coming year.

After last summer's stock market slump, market watchers will be hoping that deep reforms are rolled out to further stimulate the country's economy.

China's leadership has pledged to continue structural reform to boost production efficiency and competitiveness.

Economists are expecting policies to be announced after the meeting that address problems such as high production costs, industrial overcapacity and risks in the property and financial sectors.

"The emphasis on the supply-side reform highlights the leadership's determination to address the structural problems of the Chinese economy, which would undoubtedly boost investors' confidence," Jing Sijie, a strategist at securities brokerage BOC International (China) Ltd, said.

While most analysts believe the benchmark Shanghai Composite Index will rise in the near future, destabilizing factors remain, which could cause short-term volatility.

Market sentiment has been weighed down by the government investigation into some of the country's largest securities firms for alleged violations.

On Friday, the Shanghai Composite Index closed at 3436.3 points, down by 5.48 percent, the largest single-day loss since the market rout in August.

Earlier this month, the securities regulator resumed initial public offerings, and the first batch of 10 IPOs will lock up an estimated 1 trillion yuan ($156.5 billion).

It is also understood, according to media reports, that the China Securities Regulatory Commission has lifted the ban on stock sales by securities firms, which may lead to sell-offs by brokerages to secure previous gains.

To stem the market crash in the summer, which wiped out $5 trillion, the regulator adopted a series of temporary measures that banned securities firms from selling their stock holdings before the benchmark index reached 4,500 points.

Still, the excessive gains of smaller-cap shares and high-tech stocks have increased selling pressure.

"We keep reminding investors to lower expectations for share yields as quite a few new stocks and themed stocks have witnessed a fast increase in the previous period," Zhang Yidong, a strategist at Industrial Securities Co Ltd, said in a research note.

But he still felt the market rebound would continue and that liquidity would remain adequate with high-quality assets in short supply.

"Systemic risks will not be a primary concern although market consolidations might intensify in the short term," he said.