Regulators announce counter-cyclical adjustments, slew of favorable measures

The Chinese A-share market is showing signs of picking up, following positive announcements made during the annual Central Economic Work Conference, which concluded on Friday.

China will strengthen countercyclical adjustments in its macro policy, continue to implement proactive fiscal policy and prudent monetary policy, make preemptive adjustments and fine-tune policies at the right time, and ensure stable aggregate demand, the central regulators said at the conference.

Regulators will also reduce taxes and cut expenses on a larger scale, maintain reasonable liquidity, and increase the proportion of direct financing to solve the financing difficulties facing privately owned enterprises and small companies.

Responding to these announcements, the benchmark Shanghai Composite Index gained 0.43 percent to close at 2527.01 points on Monday. The Shenzhen Component Index went up 0.75 percent to close at 7392.56 points.

Data from Shanghai-based market information service provider Wind Info showed that telecommunication companies registered the biggest daily increase on Monday, rising 3.09 percent, followed by the pharmaceuticals and biology sector, and agricultural firms.

Li Daxiao, chief economist at Yingda Securities, said that the central regulators have undertaken long-term, forward-looking research to further reduce tax and cut expenses. These are important means to stabilize the economy, which will also help to exert positive effects on the stock market, according to Li.

"The conference plays a crucial role in stabilizing the stock market by dispelling many doubts and hearsay. In this sense, we can look forward to the performance of the country's economy and stock market next year," he said.

According to Li Qilin, chief researcher of macroeconomics at Lianxun Securities, the central regulators have not touched on the topic of increasing the proportion of direct financing over the past two years. As such, the move indicates the government will further support equity financing and bond financing, he said.

This message might also refer to the new science and technology innovation board, as well as the planned experiment with a registration system for listed companies, set for next year, he added.

Fu Lichun, research director of Northeast Securities, said that the launch date of the science and technology innovation board is likely to be announced in the first half of next year, which will promote the upgrading of the country's capital market. It is also likely to boost the stock market strongly, Fu added.

Jiang Qijia, senior analyst at financial services provider Noah Holdings, said that the systematic reform implied in the announcements during the conference will provide long-term vitality for the A-share market.

The moves bear much resemblance to the bullish market between 1996 and 2000, and that between 2005 and 2007, during which time the central regulators started the reform of Stateowned enterprises and shares trading, respectively, according to Jiang.

"It is true that there is more pressure on the macroeconomy. Some public companies are still waiting to become profitable. Therefore, the A-share market will still fluctuate despite the positive messages concerning policies, liquidity and evaluation," he said.

"For the time being, sectors closely related to the country's strategy, and those that are prepared for further tax reductions and expenses cuts, will promise growth in the long term, including high-end manufacturing, healthcare and consumption."

Experts from GF Securities wrote in a note that investors should pay close attention to sectors that are less impacted by market downturns.

The first group is characterized by profitability, which includes thermal power generation, hydropower, household paper, livestock farming, military projects, gaming and cloud computing. The second group relates more to policies, with current investment opportunities in construction, electrical devices, nuclear power, 5G and IT.