Day 71 The China National People’s Congress(NPC) and the stock market

The China National People’s Congress(NPC) and the stock market

The 2015 China National People’s Congress(NPC) will be held during third of March to fifteen of March. It is an important meeting which determines the policy guideline for the rest of the year. Certainly, the Chinese stock market is profoundly affected by this general meeting. In fact, the market index normally tends to fall at this period of time every year, due to the risk-averse effect and the precautionary dump against the policy uncertainty. As same in this year, the first day of the NPC leads to the Shanghai A share market to decline 2.2% and the Shenzhen A share market index to reduce 1.12%. So what caused the trough in the stock market?

In order to comprehend the pattern of the overall market, we have to understand the policy direction of China in 2015. These will be discussed through the meeting, and most of them have the impact on the share prices. According to the official announcement, the 2015 NPC will focus on the topic of : macroeconomics policy and goals, industrial policy, reform of the economic and administrative system. The innovation has always been the most important subject and implemented by the government with immense effort. Actually, the housing register system is one of these reformations introduced by the Chinese government. Which has largely influenced the real estate and commercial bank stock. In addition, the regional planning of future development may affect the institutions’ share price where benefited by the government policy. Moreover, the Chinese government will further discuss on the loosen monetary policy corresponding to the current weak domestic demand. The central bank of China already announced the 0.25% reduction over the nominal interest rate on 28th February. This action was performed to against the deflation phenomenon appeared in some providence of China. As a corollary of it, Chinese Yuan faced tremendous devaluation pressure, since the foreign investors’ anticipation falls and caused the hot money to exist the market. As a result, the share price of interest rate sensitive industry such as bank, real estate and insurance will tend to fall. Furthermore, the China Securities Regulatory Commission approved 24 companies’ Initial Public Offering request, which created a downward force on other weighted stock. 

On the other hand, the NPC not only generates negative pressure over the Chinese stock market, but also brings good news. The meeting concentrates on the topic of new/clean energy, environment protection, military enhancement and reform of culture and sports industry. Which will propel these industries’ stock to prevail in the share market.