Comment: China's capital market will not change in the long term

　　The long-term positive trend of China's capital market will not change

　　Fan Dayu

　　Today's Review

　　The economy is the body, finance is the blood, and the capital market plays an important role in the operation of finance. China is deepening reforms to create a standardized, transparent, open, dynamic, and resilient capital market. Short-term volatility cannot change the direction of China's capital market in the medium and long term. As long as investors uphold the professional spirit of rational investment and long-term investment, they will be able to grow together healthily with the Chinese capital market and harvest a bright future.

　　Xiao Gang, a member of the National Committee of the Chinese People's Political Consultative Conference and former chairman of the China Securities Regulatory Commission, stated at the "2020 International Monetary Forum" on July 25 that Chinese assets have long-term investment value, especially their structural value. The safety, profitability, and robustness of RMB assets are outstanding, and China's capital market has become one of the largest markets in the world. Since the beginning of this year, the Chinese financial market has shown a relatively stable situation and stronger resilience compared with the international market. The number of IPOs in the Shanghai and Shenzhen stock markets has exceeded that of the Nasdaq and the New York Stock Exchange.

　　Recently, the A-share market has experienced a sharp decline again, experiencing two sharp declines within two weeks, and some investors have begun to bearish on the Chinese capital market. Since July, the Shanghai and Shenzhen stock markets have risen sharply. This round of rise is a normal response to ample liquidity in a low interest rate environment. It is a positive response to the launch of the GEM registration system and other major reforms in the capital market. It is also a response to the epidemic in China. Remarkable prevention and control results and positive recognition of economic recovery.

　　When the stock market is rising, some investors have a mentality of getting rich overnight, and once the market pulls back, it is immediately difficult to suppress their pessimism and frustration. The reason why investors cannot maintain objectiveness and rationality is mainly because they lack a comprehensive and profound understanding of the long-term investment value of Chinese assets.

　　The Chinese stock market grew out of nothing and became the world's second largest market in less than 30 years. In recent years, with China's increasing economic status, global investors' demand for Chinese stocks has continued to rise. Relevant statistics show that by the end of 2019, the allocation of renminbi financial assets by foreign institutions has reached 6.4 trillion yuan, and an average annual growth rate of 20% has been maintained.

　　Foreign capital is very interested in the Chinese market, and since this year, China has become increasingly attractive. The spread of the global epidemic has caused major fluctuations in financial markets. The US stock market fused four times in March this year, triggering a chain reaction in the stock markets of some countries. Compared with the turbulence in the international financial market, China's capital market has shown a relatively stable operation and strong resilience. Morgan Stanley, a well-known American investment bank, even listed China as an "asset refuge" in front of the epidemic, and upgraded China's stock market to "overweight."

　　Chinese assets have long-term investment value, not only because of their low valuations, but also related to their recent structural value. Since the outbreak of the new crown epidemic, many listed companies in Europe and the United States have rapidly reduced their profits, so they have stopped paying dividends and have suspended stock repurchases. The use of cash to repurchase shares by listed companies is an important factor in stimulating stock prices. European and American stock markets have reduced dividends and weakened stock prices, which has led to a sharp drop in the rate of return on financial assets. In order to achieve better investment returns, overseas funds are bound to continue to increase their investment in Chinese assets.

　　Recently, the Shanghai and Shenzhen stock markets have fallen sharply twice, which is generally believed to be related to the large number of foreign shares sold. Data shows that the net outflow of funds from the north on Friday reached 16 billion yuan. In fact, investors do not need to worry about foreign investment, long-term investment value is the key to determining the trend of A shares. In China's capital market, there are still many listed companies in valuation depressions that have strong investment value. With the structural value of the global stock market, more external resources will inevitably be continuously injected into A shares in the future to promote the long-term improvement of the market.

　　The long-term positive trend of China's capital market will not change, because the foundation of this market is a strong and stable Chinese economy. Data show that China's gross domestic product (GDP) in the second quarter increased by 3.2% year-on-year. After experiencing a “squat” in the first quarter, economic growth in the second quarter quickly recovered. China has become the first major economy to achieve growth since the new crown epidemic. The Chinese economy is regarded as an indispensable positive energy for global recovery, and China has therefore become a mainstay in stabilizing the global economy. The inherent resilience and vitality of the Chinese economy will not only inject strong confidence and momentum into the world, but will also inevitably become a strong support for renminbi assets, attracting various long-term capital to continue to flow into the Chinese stock market.

　　The economy is the body, finance is the blood, and the capital market plays an important role in the operation of finance. China is deepening reforms to create a standardized, transparent, open, dynamic, and resilient capital market. Short-term volatility cannot change the direction of China's capital market in the medium and long term. As long as investors uphold the professional spirit of rational investment and long-term investment, they will be able to grow together healthily with the Chinese capital market and harvest a bright future.