China watchdog disapproves of stock index target setting: report

[BEIJING] Bullish calls on Chinese stocks appear to have gotten on the nerves of the country's regulators, with state media reporting that authorities are against analysts forecasting specific levels for the market.

"Some predictions in the market are rather whimsical and some people use exaggerated and empty terms in pursuit of influence," according to a commentary posted Tuesday on the official WeChat account of Securities Times, an affiliate of People's Daily.

"Regulators disapprove of the practice of setting specific targets and maintain that research opinions should be objective, professional, prudent and avoid being arbitrary," it said, citing unidentified people close to the authorities.

The move is among the latest efforts from Chinese authorities to quell speculative behavior in financial markets. Officials have repeatedly attempted to talk down commodity prices and the yuan in recent weeks. Although the article did not name any specific analysts, it referred to recent forecasts by brokerages for the Shanghai Composite Index to hit 4,000 points.

Such a call has been made by several firms, with the most notable being Guotai Junan Securities. The firm expected the winner of the rally to be securities companies - which are known for outperformance in times of market exuberance - and banks, which are among targets of state buying and retail investors.

"The predictions of large institutions have an impact on the market, and may lead to a rush to sell or buy," said Ken Chen, an analyst at KGI Securities. "Regulators neither want to see a frenzied rally nor a huge rout. A slow bull is what they prefer."

Expectation management by the regulators is not uncommon in China. They have previously sought to cool the market via state media, and issued window guidance to brokerages, resulting in sell recommendations.

While the China Securities Regulatory Commission has repeatedly vowed to take a more hands-off approach in recent years and let the market play its role, the government has stayed vigilant against potential asset bubbles that could destabilise the economy.

Guotai Junan published its note on the outlook on the market's level on May 23. Two days later, the Shanghai Composite advanced 2.4 per cent, its best day since October, as foreign buyers piled in with a strengthening yuan. The index traded 0.7 per cent lower at 3601.24 as of the mid-day lunch break on Wednesday.

Guotai Junan Securities has deleted a series of reports supporting its view for the market to approach 4,000 points on its official WeChat account. Its press officer declined to comment when contacted by Bloomberg News on Wednesday. Officials at the China Securities Regulatory Commission didn't immediately reply to a fax seeking comments.

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