China put analysts, fund managers on notice as regulators start frowning on stock index forecasting

·3-min read

In China, making calls on specific stock index levels could soon become a hazardous task for analysts and money managers. The practice might be the next focus of a crackdown by market regulators, according to state-run media.

Officials are now frowning on forecasts on specific levels of the nation’s benchmark stock indices, according to the Securities Times, a newspaper run by the Communist Party’s mouthpiece People’s Daily. The commentary cited unidentified sources at the nation’s financial-market watchdogs.

“The publication of research opinions should be objective, professional and prudent, and avoid being random,” the Times said. “The industry’s staff should stick to the bottom line of professional morality, given that China’s markets are dominated by small investors. They have poor judgment of various comments and are easily affected by sentiment.”

Do you have questions about the biggest topics and trends from around the world? Get the answers with SCMP Knowledge, our new platform of curated content with explainers, FAQs, analyses and infographics brought to you by our award-winning team.

The scrutiny on analysts’ recommendations underscores China’s determination to preserve its market stability at a time when the economy is emerging from more than a year of Covid-19 pandemic. The “warning” follows recent efforts to rein in commodity prices, temper the yuan’s appreciation and a clampdown on stock price manipulation, cryptocurrencies and anti-monopoly practices.

China’s small investors reached 185 million at the end of April, double the 92 million members of the Communist Party. They contribute to about 70 per cent of stock transactions in the country and losses have sometimes stoked social tensions abhorred by top party leadership.

Most Chinese brokerages have largely abandoned the practice of predicting specific stock index targets, not because of the threat of penalty but rather out of embarrassing missteps.

In 2019 for example, Great Wall Securities predicted that the Shanghai Composite Index would top 4,000 within the year. The gauge slumped instead after the forecast, never to climb 3,300 that year.

While the Securities Times did not mention any culprits, it came days after Shanghai-based Guotai Junan Securities published a bullish call on the Shanghai Composite in a May 23 report, which is now believed to have been deleted from its official WeChat account.

In that report, the brokerage’s strategy team led by Chen Xianshun forecast the index would climb as much as 15 per cent to 4,000 points, a level that has not been seen since the 2015 market meltdown. Fortunately, for now though, the index has risen 3.2 per cent since its publication.

Citic Securities, China’s largest publicly traded brokerage, predicted local stocks would advance for the rest of the year, it said in a second-half strategy report released this week. There would be room for bigger upside in the fourth quarter, it added, but stopped short of picking any index levels.

“As is known to all, the movements on the stock market are influenced by multi-factors and random to some extent,” according to the Securities Times. “Predicting specific market levels, bottoms and peaks is a difficult job and even goes beyond human ability.”

More from South China Morning Post:

This article China put analysts, fund managers on notice as regulators start frowning on stock index forecasting first appeared on South China Morning Post

For the latest news from the South China Morning Post download our mobile app. Copyright 2021.