Rule-based market can end the up-and-down cycle in stock market

Despite frequent corrections, China's stock market indexes have unexpectedly kept moving up in recent months. The benchmark Shanghai composite index rose to 3,301 points in late November from as low as 2,638 points early this year.

Looking forward, the domestic stock market may become more turbulent in 2017 given the many uncertainties posed by changes in both the domestic and international economic and financial landscapes.

The International Monetary Fund's latest report says the world economy may grow by 3.4 percent in 2017, up from 3.1 percent this year. Even if the forecast proves right, which is not often the case, the world economy will continue to struggle to come out of the low-rate growth cycle it has been trapped in for long.

Domestically, some analysts have predicted that China's annual year-on-year GDP growth could fall to below 6.5 percent next year. Although policymakers remain confident of keeping growth at a stable level, it will be more challenging for the country to use fiscal and monetary tools to keep the economy rolling.

The stock market trend may not closely follow the changes in economic fundamentals, but given the weak, low-rate growth prospects, the possibility is not high that the stock indexes will increase impressively. Worse, the global financial markets seem to have become more turbulent thanks to the frequent occurrence of "black swan" incidents.

Donald Trump's victory in the US presidential election has unexpectedly boosted the US stock market, but under his administration, the US economic policy may be quite different from that under incumbent President Barack Obama's. For example, Trump has vowed to use trade measures to protect US interests, which, if implemented, will create a lot of uncertainties in the global trade system, possibly affecting global growth.

Besides, the possible interest rate hike by the US Federal Reserve is a sword of Damocles over the global financial markets. Although in recent months such hikes have been priced in, global investors will have to remain alert over the impact of capital flows as a result of the strengthening of the US dollar after the hikes.

The strengthening of the dollar has often been accompanied by a massive flight of capital from the emerging markets, triggering financial and economic turmoil. The Asian financial crisis in the late 1990s, in which countries such as Thailand, the Republic of Korea and Indonesia suffered the most, is widely attributed to their unrestrained financial liberalization and the organized speculative attacks by some major international investors, but drastic international capital flows were also blamed for the crisis.

Facing such uncertainties, the domestic A-share stock market may undergo severe fluctuations next year. But for China Securities Regulatory Commission, the top priority should not be to keep the indexes stable - as it did last year. Instead, it should focus on systematic build-up to create a level playing field that rewards long-term investors.

To be more specific, the commission should make more efforts to prevent dishonest information disclosure and ensure listed companies do not refuse to "split dividends" among investors.

False information disclosure is like a cancer that has frequently damaged investor confidence in the domestic market for many years. The regulators have punished some wrongdoers, but the punishments are often criticized as being too lenient to root out the problem. And most listed companies have refused to share their dividends with investors, discouraging long-term investment and contributing to market fluctuations caused by short-term speculation.

Few stock market indexes in the world remain constantly stable. The regulatory authorities should therefore focus on maintaining a clean and rule-based market. If that task cannot be achieved, the domestic stock market will hardly be able to get out of the cycle of drastic ups and downs.

The author is a senior writer with China Daily.

xinzhiming@chinadaily.com.cn