Hu Ruyin
On November 20, on the theme "new trends, new power, new ecology" opening of the 11th annual meeting of the securities market in Beijing. Hu Ruyin, Chief Economist of the Shanghai Stock Exchange mentioned in his speech, the Chinese market is a large but not strong, core professional incompetence, with strong growth and brutal government intervention the color of immature market, lags far behind the basic needs of the real economy and the whole society.
Review the volatility of China's stock market this year, Hu Ruyin considered the stock market less than three key capacity-building, that is, value creation, wealth-creating ability, value discovery, correctly pricing power and inadequate control systems risk.
Hu Ruyin said many enterprises profit not supported by fundamentals of listed companies, in addition, many securities analysts was fooled, not very rigorous professional analysis.
In the view of Hu Ruyin, China faces two fates: an original beat silly speculation China and prudent, professional and rational investment in China. Development of prudent, professional, rational investment in China needs capital markets a comprehensive upgrade.
Following are Hu Ruyin speech full text:
Good morning, everyone! I want to talk about capital market reform and development need to be focused to address key issues.
I have a theory, the theory is a pyramid-like structure, the bottom must have the appropriate systems and policies and cultural environment, and minimize the mismatch of resources of society as a whole. Second, an efficient economy and a continued high return of investment. Thirdly, the continued high return on financial investment, such as the Yuan to become a strong currency as global reserve currency.
In the global competition power in the process, I summarized as who can provide the world's highest rate of financial return on investment, whose financial centre to become the world's leading financial centers. Second, who has the best of the real economy sector, the highest average rate of return on investment in the real economy, who can continue to provide the highest financial return on investment. Third, the minimal market distortions who, socio-cultural systems, political environment most conducive to the efficient allocation and utilization of social resources, who have the world's best companies group economic sector entities including listed companies, can have the world's highest rate of return on investments in the real economy. Finally, who can provide the world's highest rate of financial return on investment, its currency, financial assets in the world's most attractive.
Economic and financial powers to build a three dimensional guidelines, not myopic focus on the long term, you cannot go all the way to meet short-term requirements, myopic short-term vested interests at the expense of the healthy and long-term development of the economy. Second, practice skills back to basics, not cosmetic, not just talk and no action, not the substance. Third, the professional and rationalism, modern market economy is a specialized division of labor economy and its basic logic is the basic meaning of specialization, each field from the real economy, the company's management, the company's strategic management, the company's investment to the functioning of the capital market to the operation of the Government to market regulation must be specialized.
Us and UK the trilogy in building financial power: first, building appropriate cultural, institutional, policy and market environment, the effective allocation and use of resources in the society, constructing excellence in corporate sector and industry organizations, build a solid physical economic infrastructure in colleges and universities. Second, establishing the full depth and breadth of the efficiency of the financial markets, including capital markets, derivatives markets, and strong domestic financial sector, including securities industry. Third, let their currency internationalization, so their financial institutions out of the door, swept all before it.
United States in three-step strategy was very successful and positive results of the two major world leader in capital markets, first United States listed companies during the last decades of its financing structure which more than 75% is derived from internal operational processes, from continued high return on investment, external equity finance accounts for only 5%-6%. Second, over the past 200 years ' time, United States excellent profitability of listed companies is the average annual return of the stock after the inflation 5%-6%, Siegel called constants, not bragging is not blowing a bubble.
Future China capital markets development of strategy target I General for four a word "fumin power", development became health, and ordered, and efficient, and function perfect, and performance excellence, and global leading of capital markets, achieved whole economic social of full transformation upgrade, construction became global leading of innovation type national, avoid fall into medium income trap, on must development very perfect of directly financing system, Yuan to international also must vigorously development to Yuan pricing of financial assets market, including stock market, and bonds market, and Derivatives markets, and so on.
Therefore strongly supports China to become the world's economic and financial innovation and wealth-producing power, status of capital market in the middle of society as a whole, roles and functions will need to continuously upgrade and improve, expand.
As far as the size of the stock market, now ranked second in the global market value of listed companies in China, but are extremely backward in quality, efficiency of market operations, the market is not very big and not mature, is still an immature, core professional ability, with a strong color of immature market growth and brutal government intervention. We have been told this is an emerging market transition, speaking for nearly 20 years, and today we are still an emerging market transition of color is very strong, and the high market volatility risk, low return on investment for a long time, its function is incomplete, lagged far behind the basic needs of the real economy and the whole society.
Shanghai Securities Exchange established zhihou index of fluctuations and $ inx 500 and Hong Kong of Hang Seng index and N225 index compared fluctuations too big too big, high fluctuations is risk, fluctuations rate is risk, recently ten years three a index of compared, showed that this market of risk too high, it of efficiency too low, we now still is a vulnerable effective market, once into half strong effective market, now and back has, more not strong effective market, this market of quality efficiency are is has problem.
Rally crash volatility reflects what is the problem? I generally lack critical capacity-building for the securities market, three key capabilities, professionalism, value creation, wealth-creating ability, the second is the ability to find the right pricing, the third's ability to control systemic risk.
The main driving factors such as the stock market sharply higher lever driven, I call it the greater fool's investment-driven herd, distorted valuations and capricious stock market boom, five fried, FRY, fry the new concept of small, poor, and short-term speculation, impetuous, fanaticism, blind to the greater fool speculative market. Stock prices are too high, rising after the IPO, and small-cap stocks still have large stocks of prices is much more than any country in the world.
Also excluded a bank we can see, highs in the stock market when the price-earnings ratio closer to 6,124 points at very high price-earnings ratio. Us corporate earnings and the index of correlation is negative, not supported by the fundamentals of listed companies, many securities analysts was fooled, not very rigorous professional analysis. So we are faced with two China's destiny, one of the original beats silly speculation China and prudent, professional and rational investment in China. Building financial powerhouse in China must be prudent, professional and rational investment of development, thus requiring comprehensive upgrading of the capital market.
Based on direct financing of capital markets, the rational allocation of resources and use of socio-economic resources, serves the real economy, have instrumental value in professional marketing system.
Capital markets has right pricing of function, pricing wrong has all of function are finished has, so right of price signal is market reasonable configuration resources and capital markets health of premise, capital markets more is so, judge a market whether function sound of primary logo, not index rose has how many, but valuation is reasonable, valuation not reasonable valuation high bubble had rose of more more fell of more fast, only valuation reasonable this market to provides compared good of incentive mechanism, To let all the people, including all of the listed company dedicated to companies to do, rather than to think about reduction. Share post disaster reconstruction and a blockbuster
In a pricing error apparent on capital market, prices more than intrinsic value, more rational investment away from value investing, stock transactions, speculative markets, greater fool more colorful, and closer the market is irrational exuberance, have a negative effect on society as a whole greater catastrophe losses, eventually completely open capital markets under the condition that the whole society will pay a heavy price.
Most investors are holding overnight State of mind into the stock market, culture means the stock market out of the problem, it is a problem with the mode of operation, what problems demanding prompt solution in the future? Structure favourable macro-economic environment, macroeconomics has a solid economy, must first microeconomic efficiency, micro-macro-inefficient on the bigger great loss to society as a whole is not sustainable, the risk of the higher.
Second, focus on solution enhance the sustainable return of listed companies and the real economy, now returns less than 5% level of listed companies, bank deposit is close to 7%, this is can be seen as a balance sheet income statement, cash flow statement, not making money, not EVI, do not create net capital value. This problem must be solved, this problem is not resolved, China's capital market is unlikely to be a global leader in capital markets, because the quality of listed companies can't.
How investors in retail-dominated state of actuality, capacity-building for effective capital market system, improve the value of the capital market, ensuring the adequacy of capital market pricing so that all four involved in this is not abuse of market mechanism, leading to market growth and a brutal mess.
Third, how to improve derivative market mechanisms and ecosystem to realize three types of hedging, hedging, investment trade balance.
Finally, the relation between Government and market, promoting regulatory reform, avoiding conflicts of multiple decision by regulators, building a unified and efficient function of regulatory regimes and effective enforcement mechanism to ensure that Governments, regulators, media and market participant conduct in the appropriate location of the parties and due diligence.
I am here so far, thank you!
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