By Wang Shen
Yi Gang, the governor of the People’s Bank of China, stated that the fundamentals of the Chinese economy are sound and investors should remain rational when dealing with financial market fluctuations, during an interview with the Shanghai Securities News on June 19.
The Shanghai Stock Exchange Composite Index decreased by 3.78 percent on June 19. Yi believed this sharp fall was mainly due to negative sentiments and neighboring stock markets also declined to varying degrees. Since it is normal to have ups and downs in the market, investors should keep calm and be rational about market volatilities.
Yi believed the fundamentals of the Chinese economy are sound and its economic growth has become more resilient. He is confident that the Chinese capital market will develop healthily, supported by sound economic fundamentals.
He then suggested that the domestic demand has been an increasingly stronger driver of the economic growth in recent years. The current account surplus to GDP ratio has dropped from 10 percent in 2007 to 1.3 percent last year. The resilience of the Chinese economy against external shocks has been increasingly strengthened. With strong endogenous potentials, the Chinese economy has sufficient means and space to cope with various kinds of trade frictions.
Yi also pointed out that the PBOC always pays close attention to the impacts of external shocks, and will prepare relevant policy tools in a forward-looking manner. The PBOC will also use a combination of different monetary policy tools, maintain liquidity at a stable and appropriate level, and make sure the structural deleveraging progress is at the right strength and at a proper pace.
A representative from the PBOC stated that the PBOC had established an international financial risk tracking team to pay close attention to international and domestic economic changes, implement a stable monetary policy tool, actively and efficiently deal with potential external shocks and help the financial market to maintain a stable operation.
The Xinhua News Agency reported that right now, many positive factors are evident in the A-share market. The public companies have kept improving their business performance and attracting external capital inflows. Other positive factors, including the opening-up policy being promoted steadily, will help the A-share market to settle down gradually.
The Securities Times pointed out that the market has ups and downs and these fluctuations in the A-share market are also addressed by its operating rules. The information of some public companies pledging their stock rights also heightened fears and chaos in the market. While facing these various negative factors, investors should stay calm, instead of short selling large amounts of stocks irrationally.
The China Securities Journal stated that the A-share market is unlikely to sustain a stiff decline. A few experts suggested that the Chinese economy is doing better than the market expectations regarding its resilience and quality. The coordination of financial supervision has been strengthened and there are sufficient policy tools to stabilize the financial market, which will help resolve the market risks. An analyst believed that the estimated value of the A-share market is at its lowest point in history, which can bring about a high safety margin.
The Securities Daily indicated that one of the reasons why the Chinese stock price dropped sharply was that the trade conflict between China and the U.S. had intensified, which undermined the stability of the capital market expectations. However, based on the economic fundamentals of a huge domestic market potential, the Chinese economy will continue to increase steadily, and the capital market will enhance its attractiveness.
The Shanghai Stock Exchange Composite Index had risen to 2,915.73 points or by 0.27 percent at its closing time on June 20, which indicates that the A-share market is recovering from its lowest point.
