China Stocks Could Surge 40% from Beijing’s Decennial Policy to Boost Capital Market

China has been facing a declining trend in its stock market since 2021, leading the government to introduce a range of initiatives aimed at rejuvenating the market.

The China Securities Regulatory Commission (CSRC) introduced a comprehensive set of measures in August 2023 to boost the sluggish stock market. These measures included decreasing stamp duty on stock trading, facilitating corporate share buybacks, and advocating for long-term investment strategies. As a result, the CSI300 blue-chip index rebounded by 14% from five-year lows in February.

Recently, the CSRC announced the “9 Measures,” a significant policy directive released every ten years outlining the future direction of capital markets.

This latest set of guidelines represents a shift towards the focus on “supervision” and “high quality,” departing from the prior themes of “reform and opening up” in 2004 and “development” in 2014, in alignment with the broader economic and strategic goals set by senior policymakers.

Goldman Sachs analysts highlighted three key areas where they predict policy actions following recent directives, including strengthening capital market supervision and governance, enhancing the quality of listed companies by potentially raising IPO thresholds, implementing stricter delisting mechanisms, and improving shareholder returns.

Furthermore, prioritizing investor protection is crucial, with a focus on establishing more transparent disciplinary mechanisms, improved disclosure practices, and increased representation of long-term institutional capital in A shares.

The analysts emphasized that while the necessary changes are acknowledged, successful execution with effectiveness, decisiveness, and prudence will be critical for success.

Based on advancements in shareholder returns, corporate governance standards, and institutional investor ownership, Goldman’s analysts foresee substantial potential upside for A-shares. Their analysis suggests that if A-shares can narrow the gaps with international averages in these areas, they could experience around a 20% increase in value. Under a more optimistic scenario where A-shares reach the standards of global leaders, analysts believe they could potentially re-rate by as much as 40%.