Thursday 29 September 2016

Chinese regulators step in to calm markets as Asian shares retreat again

Wayne Cole, Nichola Saminather, Pete Sweeney and Samuel Shen

Published 05/01/2016 | 07:20

An investor holds onto prayer beads as he watches a board showing stock prices at a brokerage office in Beijing. Photo: Reuters
An investor holds onto prayer beads as he watches a board showing stock prices at a brokerage office in Beijing. Photo: Reuters

Asian shares retreated in choppy trade on Tuesday, led by Chinese stocks, whose early rebound fizzled out as investors remained unconvinced by Beijing's moves to restore market confidence following a disastrous start to the new year.

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Prospects were brighter for European shares, however, as financial spreadbetters predicted Britain's FTSE 100, Germany's DAX and France's CAC 40 will all open about 1pc higher.

E-Mini futures for the US S&P 500 ESc1 also hinted at stabilization with a rise of 0.2pc.

After plunging almost 7pc on Monday, the CSI300 index of the largest listed companies in Shanghai and Shenzhen rose 0.3pc, to 3,478.78, while the Shanghai Composite Index lost 0.3pc, to 3,287.71 points.

China moved to shore up shaky sentiment on Tuesday, a day after its stock indexes and yuan currency tumbled, rattling markets worldwide, but analysts warned investors to brace for more wild price swings, and the afternoon session highlighted the challenges Beijing faces.

Stocks fell more than 2pc in early trade, prompting fears that exchanges were set for a second day of panic selling after Monday's dive set off a new "circuit breaker" mechanism, suspending trade nation-wide.

But stocks soon moved back into positive territory thanks to a mixture of policy intervention and hard cash.

Signs of steadying in mainland markets also soothed jangled nerves in Hong Kong, where the Hang Seng index was little changed after a 2.7pc drop on Monday.

China's central bank injected a massive $20bn in cash through open market operations in the morning, and forex traders said it also intervened to stabilise the sliding yuan, which some blamed for aggravating Monday's slump.

For its part, the China Securities Regulatory Commission (CSRC) said it was considering more restrictions on share sales by major shareholders, a major concern for small investors.

A lockup on an estimated 1.2tn worth of shares held by major institutions, imposed as a stability measure during last summer's market crash, is set to expire next Monday.

The CSRC said it would guide major shareholders and senior executives to reduce shares through block trades and negotiated transfers, which it said would enable an "orderly exit" of emergency measures.

Major Chinese brokerages and asset management firms spent vast sums to buy up shares during the crash in a state-coordinated rescue that Goldman Sachs estimated at the time to have cost around $138bn.

The CSRC also said it would further improve the circuit breaker mechanism after some analysts blamed the tool for inadvertently fueling the sell-off.

Investors across the rest of Asia hoped for the best and nudged Japan's Nikkei up a slight 0.1pc, following Monday's 3.1pc dive.

MSCI's broadest index of Asia-Pacific shares outside Japan recouped early losses to be all but flat. E-Mini futures for the US S&P 500 ESc1 also hinted at stabilization and were last up 0.2pc.

An uneasy peace settled after the People's Bank of China injected a generous slug of liquidity into domestic markets to keep borrowing costs down.

The central bank also set the value of its yuan currency a little firmer than many had expected, countering concerns China was seeking an aggressive devaluation to aid exports.

China's securities regulator said it was studying rules to regulate share sales by major holders and senior executives in listed companies.

That might indirectly address concerns that the imminent end of a 6-month lockup on share sales by major institutional investors, or sale next Monday, would result in a massive institutional evacuation from stocks.

Yet the underlying problems had not gone away.

Surveys of manufacturers across the globe out on Monday had found activity anemic at best, with China and the United states both surprising on the downside.

That was one reason both the S&P 500 and the Nasdaq suffered their worst starts to a year since 2001.

"The price action reminds investors that the world is more connected than ever; volatility is likely here to stay, and liquidity may suffer if investor uncertainty worsens," analysts at Citi said in a note.

"Global growth and geopolitical stability remain the main sources of concern."

Policymakers seemed to share the general sense of unease.

A South Korean finance ministry official on Tuesday said the government will take action to stabilize markets if needed.

Sweden on Monday gave its central bank chief formal powers to act immediately to weaken the crown and help push up inflation, a radical step among developed world institutions.

The European Central Bank was under pressure to do yet more after German inflation proved surprisingly weak in December, pushing down bond yields and slugging the euro.

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