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Positive policy signals enhance global investor confidence, sustaining China's market appeal

Liu Ming

Editor's Note: Liu Ming is an assistant researcher with the Department of Economic Forecasting at China's State Information Center. The views expressed in this article are the author's own and do not necessarily reflect the official position of CGTN.

A concept image of Shenzhen skyline and stock market. /CFP
A concept image of Shenzhen skyline and stock market. /CFP

A concept image of Shenzhen skyline and stock market. /CFP

The Shanghai and Shenzhen stock exchanges recently held symposiums with foreign institutions to discuss advancing comprehensive reforms of the capital market. At these meetings, the participants acknowledged that counter-cyclical adjustment policies have effectively improved international expectations for China's economic prospects and strengthened foreign investors' confidence in the A-share market.

Policy support plays a crucial role in shaping market performance. With the introduction of the newly announced guidelines on strengthening supervision, preventing risks, and promoting high-quality development of the capital market, alongside the gradual implementation of the "1+N" policy system,  the foundational systems and regulatory framework of China's capital market have been comprehensively restructured. The progress has fostered strong confidence in the long-term, stable development of the country's capital markets and its economy. Since late September of last year, net purchases of domestic stocks by foreign institutions have increased, reflecting greater willingness to allocate RMB assets. According to data from the People's Bank of China, as of the end of September last year, the value of domestic RMB equities held by overseas entities reached 3.1347 trillion yuan ($442.8 billion), marking an increase of 657.56 billion yuan ($92.88 billion) from the end of August—a month-on-month growth of 26.5 percent.

In December, the Political Bureau of the CPC Central Committee meeting and the Central Economic Work Conference emphasized implementing "more proactive fiscal policy and moderately loose monetary policy" and "strengthening extraordinary counter-cyclical regulation." The tone of fiscal policy has shifted from "proactive" to "more proactive," while the monetary policy changed from "prudent" to "moderately loose." This marks a significant departure from the longstanding policy mix of "proactive fiscal policy and prudent monetary policy" that has been in place for over a decade, signaling a major shift in macroeconomic policy and a more active policy approach.

The positive policy signals have strengthened global investor confidence. Many foreign institutions have expressed optimistic views on the future performance of China's capital market and have successively raised their ratings on Chinese assets. In a January 12 research report, Goldman Sachs strategist Kinger Lau and his team expect the MSCI China Index and CSI 300 Index—covering China's core assets—to rise by about 20 percent by year-end.

Foreign institutions' confidence and optimism will greatly enhance the Chinese stock market's appeal to international investors. Foreign securities fund institutions, QFII institutions, asset management institutions, and other foreign entities are not only important participants in China's capital market but also serve as bridges connecting China with global capital markets. Their perspectives on China's A-share market hold significant reference value for global investors.

The discourse power and influence of foreign institutions in the A-share market far exceed their actual capital volume proportion. Although foreign institutions hold less than 5 percent of the circulating market value of A-shares, their position adjustments and northbound fund flows have consistently attracted widespread attention from domestic investors. With their emphasis on value investing and long-term investment strategies, foreign institutions are increasingly steering the A-share market toward more rational and mature investment practices.

The interpretation of policy implications is vital in guiding market expectations. The Shanghai and Shenzhen stock exchanges, under the supervision of the China Securities Regulatory Commission, have demonstrated China's continued support for foreign investment through the symposiums, showcasing the government's openness and cooperative spirit.

Moreover, the dialogues have effectively communicated the latest policies and their implications to foreign institutions, signaling China's market's continued appeal and development potential. The efforts have played a crucial role in guiding market expectations and boosting global investors' confidence in China's capital market.

At the upcoming 2025 national two sessions, the annual meetings of China's top legislature and top political advisory body, the release of specific figures—including the central fiscal deficit ratio, the total issuance of ultra-long-term special treasury bonds supporting the "two new" initiatives (new infrastructure and new urbanization), and the aggregate social financing—will further signal positive policy approaches. These measures are expected to strengthen international investors' expectations for China's economic outlook and enhance the global magnetizing effect of the country's capital market, potentially attracting more foreign investments in 2025.

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