Moves aim to stop sell-off
Print Edition
CHINESE stocks took another plunge yesterday after fresh government moves failed to arrest a rout that has now infected regional markets.
By the end of yesterday, more than 1,400 listed companies — about half of China’s total — had suspended trading in a bid to protect themselves against further losses.
The benchmark Shanghai Composite Index lost 5.9 percent on the day, while the Shenzhen Composite Index, which tracks the second exchange on the mainland, dropped 2.5 percent.
Hong Kong’s Hang Seng index closed down 5.8 percent after diving as much as 8.5 percent earlier in the day.
“There’s real panic out there,” Tony Chu, a Hong Kong-based money manager at RS Investment Management Co, told Bloomberg News.
“I wouldn’t suggest catching the falling knife,” he said.
The latest tumble came despite authorities announcing a raft of new measures to support the market.
The Chinese government also told state companies and executives to buy shares, raised the amount of equities insurance companies can hold and promised more credit to finance trading.
Over the weekend, the government suspended all new share listings, brokerages and fund managers bought shares in a bid to shore up the index, while the central bank sought to boost liquidity in the market via state-owned margin finance firm China Securities Finance Corp.
The People’s Bank of China said yesterday that it will support stability in the stock market and guard against systemic and regional financial risks.
CSF, which is the only organization that provides margin financing loans to qualified securities companies, will be provided with sufficient liquidity through channels such as interbank lending, floating financial bonds and mortgage financing, the central bank said.
The PBOC will “closely watch” the movement of the benchmark Shanghai Composite Index, which has lost more than 30 percent since mid-June.
CSF will purchase more shares in small- and medium-sized companies to ease liquidity in the market, said Deng Ge, a spokesperson for the China Securities Regulatory Commission, yesterday.
CSF also took steps to stabilize blue-chip stocks yesterday by offering 260 billion yuan (US$41.8 billion) of secured credit to 21 brokerage firms for stock purchases.
On Monday, the brokers invested 128 billion yuan in exchange traded funds that track the performance of blue chips.
All of these moves are aimed at helping transactions get back to normal as “investors’ panic and an irrational sell-off caused a liquidity strain on the stock market,” Deng said.
Meanwhile, the China Insurance Regulatory Commission yesterday added its weight to the fight by easing two rules governing investments by insurance firms.
Firstly, it allowed qualified firms to invest as much as 10 percent of their assets in a single blue chip company, doubling the previous limit.
Secondly, it raised the cap on the proportion of assets that insurance firms can invest in equities to 40 percent from 30 percent.
Both moves are designed to optimize firms’ investment portfolios and promote the stable and healthy development of the capital market, the commission said.
Also yesterday, the State-Owned Assets Supervision and Administration Commission ordered state-owned enterprises not to sell shares in their listed units amid the “abnormal market volatility” and urged them to help stabilize prices by purchasing shares in other listed firms.
Central Huijin Investment Co, the investment arm of China’s sovereign wealth fund, said last night that it will not sell shares and has asked its subsidiaries to hold their existing stocks and purchase new ones to help stabilize the stock market.
The company recently purchased exchange traded funds, a marketable security that tracks bonds, commodities and a basket of assets, and said it will continue to do so.
Meanwhile, the China Financial Futures Exchange said it will raise the margin requirements for sell orders on CSI 500 index futures — which comprises the 500 largest companies on the Shanghai and Shenzhen exchanges — in a bid to curb speculation.
As of yesterday’s clearing, traders must pay margin requirements equivalent to 20 percent of the contract value, up from 10 percent previously, while from today, the requirement will be raised to 30 percent, the exchange said.
Wang Jingbo, chief executive of Noah Holdings, said that much of the sell-off can be attributed to speculation by retail investors rather than any fundamental change in market conditions.
The bull run in the first half of the year resulted in “individual investors irrationally believing that they could do better than agency investors and become big winners overnight,” she said.
“However, as most of them bought their shares with the help of margin financing, the risks involved skyrocketed,” she said.
Asian markets, already under pressure from the protracted Greek debt crisis, also posted sharp declines yesterday as contagion from the rout in China spread, with investors running for safe-haven assets, such as the Japanese yen.
Tokyo dropped more than 3.1 percent and Sydney retreated 21 percent.
US-listed Chinese stocks were also marked down overnight despite gains across all three main indexes on Wall Street.
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