Reforms boost investor sentiment

China's financial authority's emphasis on pushing market-based reforms to draw more long-term investors into the capital market and to enhance the quality of listed companies has given a boost to investor sentiment and will likely help extend the rebound of the A-share market, analysts said.

Despite the unclear prospects of the ongoing trade conflict with the United States and a slower domestic economic growth, market sentiment has been improving as A-share investors have been able to digest negative external shocks such as China-US trade tension escalation and are now shifting their attention to domestic policies to guide their future investment decisions.

The expectations of more policy stimulus to shore up growth and more favorable measures to boost the role of the capital market in serving the economy will be among the key factors to determine the trend of the A-share market for the remainder of this year, analysts said. The benchmark Shanghai Composite Index has rebounded by 6.5 percent since early August.

"Policymakers are likely to step up the efforts to stabilize the economy. This, combined with the expectation for more monetary easing and the continuous effort to reform the capital market, will gradually lift investors' confidence and we expect the market to gradually stabilize," said Fei Xiaoping, an analyst at Dongguan Securities.

Policymakers at a meeting held by the State Council's Financial Stability and Development Committee on Aug 31 vowed to deepen capital market reform through a market-oriented approach and to boost its role of serving the economy by leveraging the newly launched high-tech and innovation board, known as the STAR Market, at the Shanghai Stock Exchange.

The launch of the STAR Market has been considered a milestone event in China's capital market since President Xi Jinping announced it in November 2018 as it embodies the country's aim to nurture an innovation-driven economy and to let the market have a greater say by testing the registration-based system for initial public offerings on the board.

The country's financial authority has also pledged to enhance the quality of listed companies, make the capital market more attractive to long-term investors and improve the vitality and resilience of the capital market to better facilitate the country's high-quality growth.

"The policymakers did not have such a lengthy discussion about the capital market at its previous meetings as they did this time. It showed that a stable capital market is becoming strategically important for the country given the growing downward pressure on the economy which is at a transitional stage," Song Jiangbo, an analyst at Wanlian Securities, said in a research note.

"We expect the capital market reform to be further deepened and more measures will be taken to improve the basic market systems such as the delisting process and the information disclosure system, which will help boost the market's attractiveness to more long-term investors," Song said.

"The meeting showed greater attention from the government on the capital market and it has helped improve investors' risk appetite, which could be a key factor to drive the market rebound," he added.

In addition to domestic support, China's A-share market is gaining growing recognition from foreign investors and it is being integrated into the global financial markets, as A shares are on track to being included in major global stock indices.