Guo Shuqing's First 100 Days in Office: Five Calls to Encourage Long-term Capital Entry into the Market
If there were an election for the chief marketer of the capital market, perhaps no one would be more deserving than Guo Shuqing, chairman of the China Securities Regulatory Commission (CSRC). Since his appointment in late October 2011, over the span of three and a half months, he has made five timely appeals promoting the capital market and attracting institutional investors.
"Take the United States as an example. Despite experiencing a century-defining financial crisis, the total amount of pension funds still amounts to a staggering $16 trillion, equivalent to 1.1 times the gross domestic product. Additionally, there are $4 trillion in personal pension savings plans encouraged by national policies. The mutually beneficial and co-promoting effects between the capital market and social security are very significant. Currently, China has not yet established such a stable and solid economic and financial relationship, and we should and can achieve much in this area."
On February 16th, Guo Shuqing's remarks regarding the entry of pension funds and other long-term capital into the market once again captured market attention and sparked heated discussions.
On the 15th, at the founding conference of the China Listed Companies Association, Guo Shuqing pointed out while discussing the three aspects of the current capital market mechanisms that are insufficiently sound: the lack of a close mutual promotion effect between social security and the capital market.
Guo Shuqing first provided examples illustrating the tight relationship between the social security systems of developed countries in Europe and America with corporate equities and financial markets, then pointed out that China could make great strides in this area.
"There is a misunderstanding that investing social security funds in the capital market mainly benefits the stock market, or even that it is done to save the market. This is completely inconsistent with the facts. In reality, there is a mutually dependent and mutually promoting relationship between the two. Without the stock and bond markets, it would be difficult for pension funds and housing provident funds to preserve and increase their value, which is a common experience worldwide," he emphasized.
In fact, since taking office as the head of the CSRC for over a hundred days, Guo Shuqing has mentioned related topics on more than one occasion.
According to public speeches made by Guo Shuqing since his appointment, as published on the CSRC website, he has mentioned five times the cultivation of diversified investor groups, encouraging social security funds, enterprise annuities, insurance companies, and other institutional investors to increase their investment proportion in the capital market, actively promoting the entry of national pension funds, housing provident funds, and other long-term funds into the market.
Among these, Guo Shuqing also calculated the investment returns of pension funds and other long-term funds twice.
On December 17, 2011, he first calculated the investment return accounts for long-term funds at the "Caijing" annual meeting. In his latest statement on February 15, 2012, he combined the social security systems of developed countries in Europe and America with the current annual yield rate of blue-chip stocks to conduct another detailed calculation.
This time, Guo Shuqing presented a set of data in his speech: "Currently, the valuation level averages only around 15 times P/E ratio. Among them, the static P/E ratio of blue-chip stocks like CSI 300 is less than 13 times, and the dynamic P/E ratio is 11.2 times, meaning the average annual return on immediate investment can reach around 8%."
He simultaneously indicated that the current average stock price level of listed companies in China is "broadly consistent with the European and American markets," and "China is still in the peak period of industrialization and urbanization, so the overall growth potential of these companies is greater."
The "2011 China Pension Development Report" pointed out that China's pensions face two major issues: one is the inability to cover expenses, and the other is too low a return rate. Over the past decade, the average annual return rate of pensions was less than 2%, lower than the concurrent inflation rate, implying that China's pensions are continuously shrinking.
Some analysts pointed out that relatively speaking, current listed companies not only offer attractive returns but also possess "growth premium," showing Chairman Guo's painstaking efforts in describing the allure of A-shares through investment returns and guiding pension fund investments with data-driven scientific decision-making.
The aforementioned analyst believed that "among those attending the day's event was Zhou Xiaochuan, governor of the People’s Bank of China, a key figure in bridging the gap between the money market and the capital market. This time, his 'roadshow' for the capital market was quite appropriate."
It is worth noting that as Guo Shuqing conducted multiple 'roadshows,' various departments within the CSRC system also conveyed similar viewpoints on multiple occasions.
After Guo Shuqing's speech on December 17, 2011, the CSRC held a press briefing where a responsible person from the Fund Department elaborated on the research regarding the use of long-term funds and the gains of existing social security investment management institutions from the perspective of the fund department.
At that time, the aforementioned responsible person pointed out that the National Social Security Fund currently adopts a method combining "direct investment by the Social Security Council" and "independent account management by entrusted professional investment managers," selecting 18 investment managers in three batches, including 16 fund companies and 2 securities companies. From the contributions of direct investment and entrusted investment to returns, the returns from entrusted investment account for 64.8%, with an average annual return of 14.76%.
The aforementioned fund department responsible person pointed out that the accumulated contributions to the national housing provident fund amounted to 3.9 trillion yuan, with 1 trillion yuan used for loans (housing provident fund loans) and over 2 trillion yuan basically being demand deposits. He stated that they had communicated with relevant departments about this issue and received support.
At the conference, a responsible person from the Investor Protection Bureau expressed that currently, with the gradual implementation of measures such as regulatory agencies actively promoting listed companies to return profits to investors through dividends and guiding long-term funds into the market, rational investment will have a more solid foundation, and its advantages will inevitably become increasingly apparent.
The views expressed by the aforementioned responsible person align closely with the two focal points raised in Guo Shuqing's speech on the 15th: the promotion of dividend systems in listed companies bringing investment opportunities in blue-chip stocks and the gradual implementation of guiding long-term funds into the market.
Industry insiders pointed out that concerning the topic of pension funds and other long-term funds entering the market, achieving preservation and appreciation of value is key, which serves as the source guarantee for the latter's entry into the market.