Lou Jiwei: dealing with Ponzi and retail capital market

 Lou Jiwei: dealing with Ponzi and retail capital market

However, opening up brings not only opportunities for capital market development, but also many risks and challenges. Lou Jiwei said that in the process of further promoting the high-level opening up of the capital market, how to grasp the pace of opening up and prevent and control financial risks are major issues to be considered.

Combination of supervision, institution and market opening

Lou Jiwei said that there is a large number of Ponzi financing and investment in the primary market. In the mature private equity market, a general partner (GP) only manages one fund by stages in the same industry (information technology, biomedicine, etc.) or the same stage (angel, venture capital or M & A, etc.) according to its own advantages and specialties. In China, a GP manages multiple private equity funds of the same type, which is likely to reverse projects and manipulate performance among various funds, and continue to undertake projects of poor quality among old funds through new development funds, so as to support Ponzi financing with Ponzi investment.

For the problem of institutional investors retail distribution in the secondary market, Lou Jiwei said that in the mature market, institutional investors are the main investors, most investors entrust institutions, and there are few retail investors. Institutional investors mainly obtain income through allocation. In portfolio management, fund managers beat the market in an index enhanced way, reducing the weight of low-quality stocks in benchmark stocks, improving the weight of high-quality stocks, and following the benchmark changes in discipline when adjusting the components. The overall turnover rate of mature market is low, price discovery is better, and speculation is less. Because the market is effective, the level of excess return that fund managers can contribute is also low.

However, the domestic market is still in the development stage, and there are certain opportunities for timing and stock selection. However, the holding rate of equity fund accounts is too low, generally around 60%, which is far away from the specified benchmark beta, and also deviates from the allocation requirements. In addition, the trading turnover rate of the account is high, and the fund manager believes too much in the ability of timing and stock selection to contribute income.

In addition, according to accounting standards, financial assets can be divided into transaction type, available for sale type and held to maturity type, and can be priced according to fair value or amortized cost, and large amount of shares can also be accounted by cost method or equity method. However, the boundary of the applicability of accounting standards is not clear enough, and the range of discretion is large. The underlying assets of all kinds of capital pools are disordered, nested layer by layer, constantly leveraged, and the applicable boundary of the standards is not clear, so accounting can be conducted in a more favorable way, earnings can be manipulated, and risks can be covered. Lou Jiwei said.

Lou Jiwei said that in the field of investment, mark to market system should be adopted to measure at fair value. Only in this way can we reflect the real situation of investment objectively and discipline, effectively monitor investment risks and prevent the occurrence of Ponzi scheme. This change in accounting methods can not be carried out step by step, to prevent the overall collapse of the bubble in the process of deleveraging, resulting in systemic risks. Therefore, it is necessary to set a transition period for the new regulations of asset management, giving financial institutions more time for rectification and transformation, breaking the rigid exchange, banning capital pool, curbing channels and strictly controlling risks. At the end of the transition period, all investments should be accounted for in accordance with international standards and global investment performance standards (Gips).

Lou Jiwei said that opening up should be strengthened to attract more mature overseas investors to enter the domestic market. On the one hand, it can attract some funds to enter the domestic market. On the other hand, it can help guide the investment concept and style of the primary and secondary markets to integrate with the international market, improve the risk awareness of domestic investors, and promote the market to mature gradually, healthy and long-term development of the industry. Through the combination of supervision, institutions and market opening, we can change the investment culture of capital market, improve the price discovery function, guide capital to gather to enterprises with higher efficiency and better prospects, improve the proportion of direct financing of enterprises, reduce the debt ratio of enterprises, and realize the optimal allocation of resources.

Prudent liberalization under capital

At present, Chinas capital market needs to be improved. To expand the opening of capital market, we need to grasp the opening rhythm and prevent and control financial risks.

First, the regulatory rules should be stable and transparent, Lou said. In this way, the confidence of market participants can be improved and they can continue to participate in market investment. To introduce mature foreign institutional investors, we need to focus on the construction and improvement of regulatory methods, rules and processes, so as to achieve the goal of building a nest to attract Phoenix and ultimately promote the growth and maturity of the whole capital market.

Thirdly, we should prudently liberalize under capital. The opening of capital account is a double-edged sword for the economic and financial development of the country. We should adhere to the active, stable and orderly opening, rather than blind opening. In particular, it needs to be clarified that the opening of capital market does not mean the opening of capital account. On the issue of capital account opening, China must be cautious, adhere to the principle of step-by-step, cultivate capital market tools step by step, expand the participation of foreign financial institutions, and relax the control of capital account transactions on the premise of controllable risks. We can start from the Treasury bond market, and then gradually spread to the stock market, but we must form a closed-loop to prevent arbitrage. At the same time, we should strengthen the construction of anti money laundering system and prevent the convenience of cross-border capital flow from becoming a new money laundering tool.

In general, expanding opening up is conducive to optimizing the structure of investors in the capital market, improving the efficiency of market resource allocation, and guiding the change of investment style in the capital market. Under the background of anti globalization, China should promote reform with greater opening up, promote the high-quality development of capital market, and better serve the real economy. Lou Jiwei said.