Policy support paving way for rebound

While short-term volatility may continue, the recent sell-off in China's A-share market has created potential for a medium-term rebound supported by ramped-up policy support, more reasonable valuations and improved corporate earnings, analysts said.

They made the remarks as China's securities regulator reiterated its commitment to shoring up market confidence at a symposium on Monday while implying a focus on the oversight of quantitative trading, underscoring a growing emphasis on protecting retail investors and improving their return prospects.

More policy efforts — including further share purchases by State-owned investment companies, additional central bank liquidity support, potential measures to optimize quantitative trading regulation, and stepped-up macroeconomic stimulus moves — may be considered to consolidate the foundation of market rebound, they added.

On Monday, China's A-share market recovered from a slump on Friday, when the Shanghai Composite Index fell 3.05 percent to close below the 3,800-point mark as growth-oriented stocks plummeted amid a global tech stock correction led by the South Korean bourse.

The SCI ended at 3,796.28 points on Monday, up 0.85 percent, while the growth-oriented ChiNext Index and STAR 50 Index edged up. Meanwhile, Citi upgraded China to overweight in its emerging markets allocation.

"Positive factors are continuing to accumulate, laying a solid foundation for the market to stabilize and recover," said Xu Ruchun, an analyst at Founder Securities, with stronger corporate earnings and more attractive valuations strengthening the market's fundamentals.

Xu believes that first-half net profits of A-share listed nonfinancial companies have likely recovered to a 17.8 percent year-on-year increase, while the ChiNext Index's price-to-earnings ratio had fallen to 43.7 times as of Friday, a historically moderate level.

"At the regulatory level, policy signals for stabilizing the market are clear," Xu added.

During a visit to a brokerage in Beijing on Monday, China Securities Regulatory Commission Chairman Wu Qing chaired a symposium with investors to solicit suggestions on promoting the stable and healthy development of the capital market.

In a rare move, the meeting brought together representatives from a broad range of investors — ranging from large institutional investors to individual retail investors — marking the clearest signal yet that regulators are ramping up efforts to bolster market confidence.

"The broad base of investors is the foundation of the capital market and its most important group of participants," Wu said, vowing to safeguard stable market operations and uphold an open, fair and equitable market order so investors can better share the benefits of high-quality economic and capital market development.

Participants called for stronger countercyclical measures in both the primary and secondary markets, more efforts to attract long-term capital, and a "well-regulated development of quantitative trading and artificial intelligence applications" in the capital market, the CSRC said in a meeting statement.

State-owned investment companies have also been ramping up stock and exchange-traded fund purchases. China Chengtong Holdings and China Reform Holdings announced on Sunday that they had increased their holdings of A shares and would continue doing so by using their own funds and a central bank lending facility, providing strong liquidity support to the market.

Chen Gang, an analyst at Soochow Securities, said that sustained inflows into ETFs will improve investor sentiment.

From July 1 to Friday, equity ETFs attracted more than 300 billion yuan ($44 billion) in net inflows, including over 100 billion yuan from Thursday to Friday alone, Chen said.

Analysts, however, cautioned that further policy support would be indispensable for a durable market recovery.

Liu Jipeng, a professor at China University of Political Science and Law and a senior capital market expert, said that regulatory efforts should prioritize market fairness, arguing that some quantitative trading strategies that rely on technological advantages to profit at the expense of ordinary investors should be better regulated.