Friday 30 September 2016

China economy: Beijing plan halts $3trillion share slide on markets

Samuel Shen and Pete Sweeney

Published 07/07/2015 | 02:30

An investor is reflected on glass doors as he walks past in front of an electronic board showing stock information at a brokerage house in Shanghai, China. Photo: Reuters
An investor is reflected on glass doors as he walks past in front of an electronic board showing stock information at a brokerage house in Shanghai, China. Photo: Reuters

Chinese stocks rose yesterday as an unprecedented series of support measures unleashed by Beijing brought some relief to a market whose 30pc slide over the past three weeks had raised fears about the stability of the world's second-biggest economy.

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Almost $3trn (€2.7trn) has been wiped off the value of A-shares listed in Shanghai and Shenzen since mid-June,

In an extraordinary weekend of policy moves, brokerages and fund managers vowed to buy massive amounts of stocks, helped by China's state-backed margin finance company, which in turn would be aided by a direct line of liquidity from the central bank.

The CSI300 index of the largest listed companies in Shanghai and Shenzhen closed up 2.9pc, while the Shanghai Composite Index gained 2.4pc.

That represented a significant pullback, however, from an initial burst of euphoria that pushed both indexes up around 8pc when trading began, raising questions about whether the rebound can be sustained.

Oliver Barron, China policy research analyst at NSBO, said it wasn't just faith in the markets at stake after investors had ignored official measures to prop up equities as indexes slid around 12pc last week.

"After the market continued to fall despite myriad support measures, the government reached peak panic mode and must have worried that investors would not only lose confidence in the markets, but in the government itself," he said.

The rapid decline of China's previously booming stock market, which by the end of last week had fallen around 30pc from a mid-June peak, had become a major headache for President Xi Jinping and China's top leaders, who were already struggling to avert a sharper economic slowdown.

In response, China has orchestrated a halt to new share issues, with dozens of firms scrapping their IPO plans in separate but similarly worded statements over the weekend in a tactic authorities have used before to support markets.

Turmoil

Traders have also complained that some firms may be ducking out of the market turmoil by seeking a trading suspension, as an unusually large number of companies - about a quarter of all those listed in Shanghai and Shenzhen - have filed for a halt.

Recent falls in commodity markets, which are sensitive to expectations of Chinese demand, underline the broader fears among global investors about the strength of the economy.

Chinese steel prices are at their lowest level since the depths of the global financial crisis and iron ore has fallen 17pc since mid-June. Analysts cautioned, the latest policy moves may only bring short-term respite. (Reuters)

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