夏乐：修复市场动荡需要新的方法

After a lull in China's equity market due to the government's unprecedented intervention, investors became agitated again on July 27 and sold shares indiscriminately. The Shanghai Composite index plunged 8.5%, its sharpest one-day slide since 2007, while more than 1,700 stocks hit their downside daily price limit of 10%. The tumble came against the backdrop of the government's earlier bailout measures to stabilize the market, including the suspension of initial public offerings, raising short-selling costs for stock index futures and directing insurers' funds towards the stock market. Notably, the authorities also instructed banks to lend money to China Securities Finance Corp. so it could prop up share prices through a buying spree in the market. Nevertheless, the renewed market sell-off is no surprise as a number of factors that spawned the previous market downturn persist in today's market. Indeed, some of them have even been aggravated by the authorities' bailout measures. For example, the excessive use of margin lending has been widely blamed as one of the culprits for the run-up of share prices and the ensuing market plummet. With the vast amount of margin lending parked in the equity market, share prices are vulnerable to any bad news and downward adjustment. As of July 22, outstanding margin loans stood at 1.44 trillion yuan ($231.9 billion), according to official figures. This was down from a peak of 2.27 trillion yuan on June 18 but still way above the daily average level of 520 billion yuan last year. These figures don't include margin lending through shadow banks. Even the government's interventions themselves bear significant risks. The bailout measures functioned at the expense of market-based rules. This has largely dampened investors' confidence in China's stock market and driven away "smart money" institutional investors. As a consequence, market trading is expected to be increasingly dominated by retail investors and even more susceptible to their herd behavior. Learning lessons This time the authorities should draw on the lessons of their previous intervention and improve their policy reaction. First, a unified regulatory umbrella should be established to stem the contagion from the equity market to other financial markets in a bid to avert a systemic crisis. Indeed, the last market crash exposed the lack of coordination across different regulators. If regulators acted in a concerted way, the contagion could be contained at an early stage and lower cost. Second, the government should refrain from directly intervening in the market to bolster share prices, which has been proved to be ineffective. Instead, the central bank should focus on providing liquidity to those financial institutions which are vulnerable to share price movements. As long as financial institutions are insulated from liquidity shocks, the fluctuation of share prices is unlikely to translate into a systemic crisis. Last but not least, the authorities could improve their communications with the market and reinforce investors' confidence. In this respect, they can ask important financial institutions to conduct stress tests and report the results publicly. This could help to allay people's concerns over the creditworthiness of important financial institutions and avoid potential bank-run risks. In the long run, the authorities should consider accelerating capital account liberalization. By inviting more foreign investors, in particular institutional investors, into the domestic market, the authorities could balance the dominance of retail investors and make the market less susceptible to herd behavior. Moreover, opening the capital account could also help domestic households to diversify their investments. The lack of suitable alternative investment choices for retail investors contributed to the overheating in both property and equity markets. 【原文链接】http://asia.nikkei.com/Markets/Equities/Renewed-market-turmoil-shows-need-for-new-approach