Market expects more policies for listed firms and higher profitability

China's A-share market rose on Tuesday on expectations of more supportive policies for refinancing, mergers and acquisitions among listed companies, and prospects of their profitability improving in the future, insiders said.

This helped overcome initial jitters over overnight slides in the US stock markets where the Dow Jones Industrial Average shed nearly 2 percent and Nasdaq plunged more than 4 percent, they said.

The benchmark Shanghai Composite Index gained 1.06 percent on Tuesday while the Shenzhen Component Index closed 1.37 percent higher. The tech-heavy ChiNext in Shenzhen jumped 2.17 percent. Total trading value on the Shanghai and Shenzhen bourses exceeded 800 billion yuan ($119 billion).

The Chinese mainland's bourses opened lower on weakness in the US markets, but closed higher after news filtered in about a key speech around 2 pm.

In an interview with CCTV on Tuesday, Wang Jianjun, vice-chairman of the China Securities Regulatory Commission, said although the A-share market does face various risks, the impact is generally under control as the market is backed by the country's economic resilience and listed companies' solid growth. This will be further boosted by more supportive policies in the pipeline for certain listed companies hurt by the current situation, he said.

Market insiders said the COVID-19 resurgence, geopolitical tensions, logistics issues, global inflation worries and recession concerns remain key challenges in the current situation.

Wang went on to observe that the average leverage in the A-share market is limited and controlled. There is no collective redemption of mutual fund products at present. The short-term market fluctuations will not undermine the long-term upward momentum of the Chinese market.

The overall ecosystem of the A-share market has improved with ongoing reforms. While showing more vitality, the market has also withstood various larger-than-expected impacts, showing its strong resilience. Investors should thus stick to the rule of value investment and long-term investment, Wang stressed.

His remarks and assurances were enough for the A-share market to rebound before the day's close, market mavens said.

Analysts from Guotai Junan Securities said the central regulators have repeatedly emphasized the stable operation of the capital market. Clear statements were also made about supply chains, property markets and internet supervision, all of which are closely watched by the capital market.

The resolve to stabilize economic growth has been quite evident. Monetary and credit policies are expected to be further relaxed. Investors should thus be more reserved under such circumstances, they said.

Data from the public domain showed the total sales revenue of all A-share companies reached 16.6 trillion yuan in the first quarter, up 11 percent year-on-year, increasing their combined net profit by 5 percent year-on-year to 1.4 trillion yuan.

But, Wang of the CSRC told CCTV, some listed companies in the SME－small and medium-sized enterprises－sector have faced much difficulty over the past few months due to a contraction in demand, the COVID-19 impact on the supply side and weakening economic expectations.

Production has resumed in an orderly way, and more supportive policies will be introduced to help various industries and areas weather the current difficulties more rapidly. Listed companies will receive support for refinancing, mergers and acquisitions, Wang said in the CCTV interview.

Qin Peijing, chief strategist with CITIC Securities, said that external negative impacts have been assimilated and the domestic companies' production resumption has proceeded as scheduled. Negative sentiment in the market has been fully released.

Wang of the CSRC told CCTV the A-share market has witnessed net inflows of foreign capital in the first two months of the year and net outflows in March. But the direction changed again in April. Such dynamics are normal and no fundamental change has taken place, with foreign investors maintaining confidence in China's long-term economic growth.

The connectivity mechanism between Chinese mainland and overseas capital markets will be further optimized, with more cross-border investment and risk management products scheduled to be introduced, Wang said.