Business World

Saturday 1 October 2016

China stocks fall despite state support

Samuel Shen and Pete Sweeney

Published 09/07/2015 | 02:30

An investor watches an electronic board showing stock information at a brokerage office in Beijing, China, July 7, 2015
An investor watches an electronic board showing stock information at a brokerage office in Beijing, China, July 7, 2015

Chinese stocks fell once again yesterday, taking little 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 30 percent off Chinese shares since mid-June.

After a brief respite on Monday, the CSI300 index of the largest listed companies in Shanghai and Shenzhen ended down 1.8pc yesterday, while the Shanghai Composite Index lost 1.3pc.

Borrowers

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.

Exchange data shows the balance of outstanding margin loans has fallen more slowly than the market drop and that leveraging has consequently increased to a record proportion of the market, creating a vicious cycle of pressure to sell.

Global investors have grown increasingly concerned that a full-blown crash could destabilise the world's second-biggest economy.

Commodities markets are also taking fright at what the slump says about the underlying economy, with prices of copper, coal, natural gas and iron ore falling toward their 2015 lows.

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 120 billion yuan (€17.65bn) of stocks, helped by a state-backed margin finance company, which in turn has a direct liquidity line from the central bank.

Unlike other major stock markets, which are dominated by professional money managers, retail investors account for around 85pc of China trade, which exacerbates volatility.

Blue chips fared best as a result of the targeted buying, especially the big five banks. (Reuters)

Irish Independent

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