China’s central bank steps up efforts to ensure market stability
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2015-07-10 16:10:14
Chinese authorities have ramped up their attempts to restore investor confidence in the country’s tumbling stock markets, setting the stage for another turbulent week of trading on the Shanghai and Shenzhen stock exchanges.
The China Securities Regulatory Commission said in a brief statement late last night that the central bank would “uphold market stability” by providing liquidity to China Securities Finance, a state entity that makes margin financing available to brokers.
The regulator’s announcement came after brokers, fund managers and groups planning initial public offerings pledged to help stabilise market confidence over the weekend. The CSRC had said on Friday that CSF’s capital would be quadrupled to Rmb100bn ($16bn).
CSF could, in turn, lend to a Rmb120bn investment fund that 21 brokerages are launching to support the market. “With 17 per cent of market cap supported by margin financing, the government will do anything to prevent a real market collapse,” said Carl Walter, a China securities expert
Investors have lost almost $3tn in paper gains — equivalent to about one-third of China’s annual economic output — since the two exchanges’ began their headlong retreat from highs last month. The Shanghai and Shenzhen indices fell 5.8 per cent and 5.4 per cent respectively on Friday, capping their worst three-week decline in more than 20 years.
Measures to support the market include the voluntary suspension of IPOs by 28 companies that had received earlier approvals to float on the Shanghai and Shenzhen stock exchanges, and a pledge by 25 fund managers to help stabilise the market by buying units in their own funds and holding on to shares for at least a year
Fraser Howie, an expert on China’s capital markets, said: “Almost every one of these measures reeks of panic and is very short-sighted. It’s going to be another crazy week.”
The Securities Association of China said that the 21 brokers contributing to a market stabilisation fund would not sell stocks as long as the Shanghai Composite index remained below 4,500. It added that its members, which had “full confidence in China’s capital markets”, would also buy back their own shares to support the market. The Shanghai market closed on Friday at 3,686.92, about 20 per cent below the association’s target level.