Sunday 25 September 2016

China races to avoid stock crash

Pete Sweeney and Samuel Shen

Published 06/07/2015 | 02:30

China's stock markets face a make-or-break week
China's stock markets face a make-or-break week

China's stock markets face a make-or-break week after officials rolled out an unprecedented series of steps at the weekend to prevent a full-blown stock market crash that would threaten the world's second-largest economy.

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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.

China has also 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.

The Chinese government was anxiously awaiting the market opening today to see if the new measures will halt a 30pc plunge in the last three weeks.

"After the 28 companies suspended their IPOs, there will be no new IPOs in the near term," the China Securities Regulatory Commission (CSRC) said in a statement on Sunday night.

An online survey by fund distributor eastmoney.com over the weekend, which polled over 100,000 individuals, said investors believed stock indexes would rise more than 5pc today. But many of those polled didn't think the bounce will last long.

"You're going to need the central bank to open the floodgates to take us back to 4,500 points in Shanghai," said an investment manager in Shanghai.

The Shanghai Composite Index was last at 4,500 on June 25, and is now trading 22pc lower.

China stocks had more than doubled in just 12 months even as the economy cooled and company earnings weakened, resulting in a market that even China's inherently bullish securities regulators eventually admitted had become too frothy.

But the slide that began in mid-June, which the CSRC initially tried to downplay as a "healthy" correction after the fast run-up, has quickly shown signs of getting out of hand.

A surprise interest-rate cut by the central bank last week, relaxations in margin trading and other "stability measures" did little to calm investors, who sent shares down another 12pc in the last week alone.

The effect of the policies is to signal to China's army of retail investors, who conduct around 85pc of share transactions, that the government is now standing behind the stock market.

In Numbers

22pc - The fall in the Shanghai Composite Index since June 25

€17.37bn - The amount 21 brokerages will spend on Chinese stocks

28 - The number of companies that halted IPOs

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