Stock markets in the Chinese mainland saw a sudden rise Wednesday after a continuous decline since the Spring Festival holidays, buoyed by the security regulator's plan to invest the public housing provident fund in the capital market.
Experts said the fund injection will boost the stock market in the short term, but will have little impact on the key issues affecting the market.
The benchmark Shanghai Composite Index closed at 2,313.22 points Wednesday, up 0.87 percent from the previous close, and the Shenzhen Component Index climbed by 1.36 percent, closing at 9,333.24 points.
China has started preparations to invest the public housing provident fund in stocks, officials from the China Securities Regulatory Commission (CSRC) were quoted by China Securities Journal as saying Wednesday.
Previously, the fund could only be invested in national debt and banking deposits, which are relatively safe but have lower return rates.
By the end of 2011, the balance of the public housing provident fund had reached 2.1 trillion yuan ($337 billion), according to the Ministry of Housing and Urban-Rural Development.
"The fund injection will boost investors' confidence in the short term, but will not affect key issues burdening the market, such as insider trading and non-tradable shares," Tu Chunhui, general manager of a research department at China Development Bank Securities, told the Global Times Wednesday.
"There is a lack of long-term confidence in the stock market," even though there have been market reforms, Tu said.
CSRC Chairman Guo Shuqing has launched a series of strict reforms since he took office in October 2011, but saw a drop in the Shanghai benchmark index of around 13 percent by the end of 2012 since his arrival.
Although the market saw some improvement in January this year, shares started retreating again after the Spring Festival holidays.
Chinese investors have become used to paying more attention to regulators' policies than the financial performance of listed companies, because any slight policy modification could cause a big fluctuation in stock prices.
Tu estimated that the total investment in wealth management funds has reached around 7 trillion yuan so far, and "if these people have more confidence in the capital market, and transfer this money to the market, it will be a big support for stock prices."
The CSRC's new plan also raised concerns that investing the housing fund in shares may run the risk of losses on the sagging stock market.
"The housing fund, which is primarily designed for home purchasing and renting, is owned by the residents, so the investment should be responsible on their behalf," Liu Yuan, a senior research manager at property consultancy Centaline China Real Estate, told the Global Times Wednesday.
The CSRC said it is also trying to attract more long-term funds into the stock market, according to the China Securities Journal report.
It is considering allocating a quota of 100 billion yuan for Taiwan's investors under the Renminbi Qualified Foreign Institutional Investor (RQFII) scheme, the report said.
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