Fourth, market order and rules need to be improved. There is a lack of market integrity and legal awareness among some market players. Some listed companies make frauds in disclosure and financial statements. Insider trading and market manipulation happen from time to time.
Fifth, market volatility is substantial, especially in the past 5 or 6 years. The Shanghai Composite Index surged by 97% in 2007, plunged by 65% in 2008, and then sky-rocketed again by 80% in 2009.
However, in 2012, some positive changes have taken place in the capital market:
First, markets have become more balanced. In 2012, although equities financing has lowered, corporate bond financing increased by 60% to 3.62 trillion RMB Yuan. In the futures market, turnover grew by 38% to 1.45 billion lots, with 171.1 trillion RMB Yuan in trading value, 24% higher than the year before.
Second, investor structure has been improved. Now professional institutional investors hold 17.4% of free-float market cap of A-shares, 1.7 percentage points higher than that at the end of 2011. Retail investors’ holding is 25.3%, decreasing by 1.2 percentage points. Enterprises and other institutions’ holding takes up 57.3%, which is 0.5 percentage points lower.
Third, trading structure has become better. Now retail investors account for 80.9% of the total trading volume, which is 3.1 percentage points lower than the level in 2011, whereas professional institutional investors take up 15.2% of turnover, up by 1.8 percentage points.
Fourth, equity price structure has been improved. Blue-chips’ valuation increased. The CSI 300 index grew by 7.6%, Shanghai 180 shares index climbed by 10.8%, Shanghai 50 shares index gained 14.8%, which are far higher than the market average. In addition, the average offering price dropped by 28%, and the P/E ratio declined by 36% last year.
Fifth, equities market fluctuation is much smaller. Share prices become more stable.
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