This week's two-day plunge on the mainland stock market rudely
awakened investors to the fact that share prices can go up as well
as down. As uncertainties continue, investors are asking where is
the much-promised index futures market.
Although not everyone agrees index futures are the remedy for
stock market woes, investors are keen for a hedging mechanism to
lock in earlier gains. And there's no shortage of savvy investors
waiting for the chance to profit from a bear market by shorting
index futures.
Economists and analysts said the latest A-share market drop
triggered by global financial market uncertainties has put the
mainland's first index futures into the spotlight.
But analysts warn of speculative activities, which could magnify
market risks in the initial stage of the financial futures
market.
Zuo Xiaolei, chief economist at China Galaxy Securities Co in
Beijing, told China Daily: "In a less mature financial
market, investors should be educated to first use index futures as
a hedging tool to stabilize stock market movement, rather than
making a profit by speculating.
"An index futures market is not a safe haven for risk-averse
investors. But if used well, index futures can be a most effective
tool for risk management."
Most mainland institutional investors will welcome index
futures, said Lin Dongqing, director of investment at First-Trust
Fund Management Co in Shanghai.
"By using this hedging tool, we can reduce earnings volatility
and lock up our profit without changing the investment portfolio's
constitution," Lin said.
The hedging function of index futures is of particular
significance for investors with longer-term stocks, said Zhou
Liang, head of research at Lipper China.
Mainland stocks continued their recovery yesterday, with the
benchmark Shanghai Composite Index rising 0.31 percent or 14.69
points to close at 4717.73. Turnover on the Shanghai bourse was
150.7 billion yuan.
The key index has regained a combined 3.45 percent after
Tuesday's dive. The smaller Shenzhen Component Index climbed 1.26
percent or 212.29 points to close at 17086.6 yesterday. Turnover on
the Shenzhen bourse was 77.7 billion yuan.
(China Daily January 25, 2008)
