China's stock market gains international appeal amid reforms

China's stock market managed to secure spectacular gains in 2020 as reforms widened access for overseas investors and boosted its long-term investment value.

The benchmark Shanghai Composite Index gained 13.87 percent in 2020, while the ChiNext Index, tracking China's NASDAQ-style board of growth enterprises, surged nearly 65 percent.

Net inflows of funds through "northbound trading," or money invested from Hong Kong into the Chinese mainland through the stock connect programs, exceeded 200 billion yuan (around $31 billion), indicating a bullish sentiment of overseas investors toward Chinese stocks.

The increased foreign holdings came as China opened its capital market further to the world. As part of the opening-up measures, the country lifted quota restrictions on two major inbound investment schemes in June last year and allowed the institutional investors broader investment scope with revised rules introduced in September.

In 2020, the country's securities regulator also stepped up efforts to make institutional changes to the stock market, simplifying entry and exit channels for firms.

The country's A-share market saw nearly 400 new initial public offerings (IPO) last year, raising some 470 billion yuan, a new high in almost 10 years.

The record number was boosted by the expansion in registration-based IPO reform to the Shenzhen Stock Exchange's ChiNext board last year, which greatly enhanced listing efficiency.

"The registration-based IPO mechanism has made listings more market-oriented, allowing the capital market to play a better role in supporting the real economy," said Teng Yin, an investment adviser with Everbright Securities.

The country announced that it would expand the registration-based IPO mechanism to all boards, a move hailed by analysts that would further increase the number of IPOs and the total amount to be raised.

Global auditing and consulting firm PwC predicted that around 430 to 490 firms would debut on China's A-share market in 2021, raising a record 450 billion to 480 billion yuan.

While the number of IPOs peaked, 2020 also saw a record 16 delistings as regulators vowed to improve the quality of public firms and clarified rules that would trigger forced exits.

On the last day of 2020, China's stock exchanges released a series of revised delisting rules, which put more weight on trading indicators such as stock prices and market values in deciding the delistings.

Such reforms would further boost the investment value of the A-share market and make it more attractive to foreign investors, analysts said.

In 2021, China's stock market is expected to see inflows of foreign capital reaching 300 billion yuan, supporting further gains in the indexes, said Yang Delong, chief economist at First Seafront Fund.