Hopes for additional financial reforms maintain momentum

Investors at a brokerage in Fuyang, Anhui province, March 23, 2015. Turnover at the Shanghai Stock Exchange reached 661.6 billion yuan ($105 billion).[XIE ZHENGYI/FOR CHINA DAILY]

Mainland stock markets extended their winning streak for a ninth day on Monday, with investor confidence reinforced by a pledge by top officials for further deepening of financial reforms.

The benchmark Shanghai Composite Index advanced almost 2 percent to 3,687.73 points on turnover of 661.6 billion yuan ($106 billion) from 651.8 billion yuan on Friday. The index breached the seven-year high on Tuesday and has continued rising since.

The information technology, construction and energy sectors led the charge, while the ChiNext board, the Chinese equivalent of Nasdaq's Growth Enterprise Board, surged 3.6 percent on Monday.

Analysts attributed the latest rally to ballooning liquidity resulting from the central bank's latest move in pumping up the capital market.

A market report from Haitong Securities Co Ltd predicted continued confidence as a result of the central bank's expansionary policy.

"The economy's downward pressure has been temporarily eased, and capital outflow momentum is also tapering off as the yuan begins to stabilize," it said.

"We can read the obvious signals of monetary easing from the central bank, as it lowered the interest rate on reverse-repurchase agreements and moderated the drain of capital from the market."

Deng Ge, a spokesman for the China Securities Regulatory Commission, told a news conference after the close on Friday that the market rally reflected ample liquidity and improvement in corporate earnings. He said that "healthy" market development was good for economic restructuring.

The latest figures show that by March 16, outstanding debt arising from margin trading on the Shanghai Stock Exchange rose 1.7 percent to a record 927 billion yuan, another sign of heightening investor confidence, analysts said.

At the China Development Forum, held in Beijing on Sunday, central bank Governor Zhou Xiaochuan said the Chinese capital market would be "more open" this year, with the launch of the Shenzhen-Hong Kong Stock Connect program expected before the end of the year.

Quoting unnamed stock market sources, Hong Kong newspaper Oriental Daily reported the authorities are expected to confirm an October start date sometime next month. It also said Hong Kong institutional investors would be allowed to trade shares listed on the ChiNext board, and that the daily quota for trading Shanghai and Shenzhen shares under the connect programs would be raised from 13 billion yuan to 20 billion yuan.

A Hong Kong stock exchange spokesman said details of the program are being confirmed with the Shenzhen Stock Exchange.

Eliot Li, a director with Hong Kong-based First Shanghai Financial Holding Ltd, said participants expect the new connect program - which follows last year's launch of the Shanghai-Hong Stock Connect - will offer investors more eligible shares.

Hong Kong investors are relatively cautious in trading small-cap shares, including those on the ChiNext board with price-earnings ratios of above 80 times, Li said.

"But as we have seen, the Shanghai-Hong Kong program has enhanced liquidity and pushed up turnover on both markets, and we expect the Shenzhen-Hong Kong program to strengthen that effect."