Business World

Sunday 25 September 2016

China economy: Stocks fall again despite emergency measures by the government

Published 07/07/2015 | 07:21

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 fell sharply yesterday, taking no comfort from a slew of support measures unleashed by Beijing in recent days, and unnerved by Chinese Premier Li Keqiang's failure to mention the market chaos in a statement on the economy.

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Before the market opened, Li said in comments posted on a government website that China had the confidence and ability to deal with challenges faced by its economy, but had nothing to say on the three-week plunge that has knocked around 30pc off Chinese shares since mid-June.

After a brief pause in the slide on Monday, the CSI300 index of the largest listed companies in Shanghai and Shenzhen fell 4.4pc in morning trading yesterday, while the Shanghai Composite Index shed 3.2pc.

The ChiNext growth board, home to some of China's giddiest small-cap valuations, fell 5.1pc.

Qi Yifeng, analyst at consultancy CEBM, said government measures were not strong enough to reverse the downtrend, especially as it was a liquidity issue for many who had borrowed to buy shares and were now forced to sell to meet margin calls.

"It's just a matter of whether it will fall more slowly, or continue to slump in freefall," he said.

Global investors have grown increasingly concerned about China's volatile stock markets, fearing a full-blown crash could destabilize the world's second-biggest economy.

In an attempt to arrest the sell-off, China has arranged a curb on new share issues and orchestrated brokerages and fund managers to promise to buy at least 120bn yuan of stocks, helped by China's state-backed margin finance company, which in turn has a direct line of liquidity from the central bank.

The official Shanghai Securities News reported yesterday that China's major insurance firms ploughed tens of billions of yuan into blue-chip exchange-traded funds and large caps on Monday.

China Life Insurance Co bought a net 10 billion yuan ($1.6 billion) in index funds, while China Pacific Insurance Group and other insurers each invested more than 1 billion yuan, the newspaper said.

That helped the indexes rise just over 2 percent on Monday, but the relief was shortlived.

Unlike other major stock markets, which are dominated by professional money managers, retail investors account for around 85pc of trading in China, a factor that contributes to the stomach-churning volatility of Chinese equities.

Reuters

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