Foreign investors have called on Chinese regulators to review the mechanism that allowed more than half its listed companies to halt trading in their shares during the recent market crash, trapping investors as prices tumbled.
As China’s stock markets dropped 30 percent in less than a month, about 1,500 companies listed in Shanghai and Shenzhen suspended their stocks, many citing reasons that would not typically require a trading halt or were not borne out by their subsequent actions.
As markets stabilized, more than half the suspended companies resumed trading.
The suspensions reduced liquidity in stock portfolios and exchange-traded funds, forcing some to suspend redemptions and making it difficult for banks to value derivatives based on mainland shares, known as “A” shares.
“We hope that after each and every situation like this, people do go over the rules and make improvements to make the market as investable as possible,” said Rodney Comegys, head of investments Asia Pacific at Vanguard.
Investors said a review of suspension rules was key if China hopes to be included in index compiler MSCI’s key Emerging Markets Index, which could bring in big flows of cash from foreign institutions.
“One of the issues [MSCI] may look closely at is shares suspension,” said Jack Lee, head of China A-shares research at global investment firm Schroders in Hong Kong.
“This incident shows there is room for improving the share suspension mechanism,” he said, adding that these were voluntary actions by listed companies.
FTSE Russell, another index compiler, will look at share suspensions as part of its A share review, an individual familiar with its thinking said.
Rules published on the Shanghai and Shenzhen exchange Web sites outline a range of circumstances in which companies should request share suspensions, none of which include a marketwide sell-off. However, the rules afford exchange officers a high degree of discretion to grant suspensions, one analyst said.
A Reuters analysis of 100 companies shows nearly three-quarters requested a trading halt due to “significant matters,” such as deals or asset restructurings, though 30 resumed trading without completing a transaction.
The rest cited the creation of employee stock ownership plans (ESOP) or management incentive schemes, an event that does not explicitly require a suspension under China’s exchange rules, or in markets such as Hong Kong or London. Half failed to complete the plan.
“Many companies aggressively pursued suspensions under the guise of supposedly establishing ESOP plans and other ownership-related matters, to avoid their share price from plunging,” one Shanghai analyst said.
The Shanghai Stock Exchange, Shenzhen Stock Exchange and China Securities Regulatory Commission (CSRC) did not respond to requests for comment.
Separately, China has made 2.5 trillion yuan to 3 trillion yuan (US$400 billion to US$483 billion) of funding available for government agency China Securities Finance Corp (CSF, 中國證金) to support the stock market, people familiar with the matter said.
The funding is to offer liquidity support to brokers and to purchase stocks and mutual funds, the people said.
The money was available from the central bank’s relending facility; credit lines with commercial banks; borrowing by CSF in the interbank market; and bonds and short-term notes sold by CSF, the people said.
Banks including Industrial and Commercial Bank of China Ltd (中國工商銀行), China Construction Bank Corp (中國建設銀行), Bank of China Ltd (中國銀行) and China Merchants Bank Co (招商銀行) had each already provided credit of at least 100 billion yuan to CSF as of Monday, bank officials familiar with the matter said.
Additional reporting by Bloomberg
ISSUES: Gogoro has been struggling with ballooning losses and was recently embroiled in alleged subsidy fraud, using Chinese-made components instead of locally made parts Gogoro Inc (睿能創意), the nation’s biggest electric scooter maker, yesterday said that its chairman and CEO Horace Luke (陸學森) has resigned amid chronic losses and probes into the company’s alleged involvement in subsidy fraud. The board of directors nominated Reuntex Group (潤泰集團) general counsel Tamon Tseng (曾夢達) as the company’s new chairman, Gogoro said in a statement. Ruentex is Gogoro’s biggest stakeholder. Gogoro Taiwan general manager Henry Chiang (姜家煒) is to serve as acting CEO during the interim period, the statement said. Luke’s departure came as a bombshell yesterday. As a company founder, he has played a key role in pushing for the
China has claimed a breakthrough in developing homegrown chipmaking equipment, an important step in overcoming US sanctions designed to thwart Beijing’s semiconductor goals. State-linked organizations are advised to use a new laser-based immersion lithography machine with a resolution of 65 nanometers or better, the Chinese Ministry of Industry and Information Technology (MIIT) said in an announcement this month. Although the note does not specify the supplier, the spec marks a significant step up from the previous most advanced indigenous equipment — developed by Shanghai Micro Electronics Equipment Group Co (SMEE, 上海微電子) — which stood at about 90 nanometers. MIIT’s claimed advances last
CROSS-STRAIT TENSIONS: The US company could switch orders from TSMC to alternative suppliers, but that would lower chip quality, CEO Jensen Huang said Nvidia Corp CEO Jensen Huang (黃仁勳), whose products have become the hottest commodity in the technology world, on Wednesday said that the scramble for a limited amount of supply has frustrated some customers and raised tensions. “The demand on it is so great, and everyone wants to be first and everyone wants to be most,” he told the audience at a Goldman Sachs Group Inc technology conference in San Francisco. “We probably have more emotional customers today. Deservedly so. It’s tense. We’re trying to do the best we can.” Huang’s company is experiencing strong demand for its latest generation of chips, called
GLOBAL ECONOMY: Policymakers have a choice of a small 25 basis-point cut or a bold cut of 50 basis points, which would help the labor market, but might reignite inflation The US Federal Reserve is gearing up to announce its first interest rate cut in more than four years on Wednesday, with policymakers expected to debate how big a move to make less than two months before the US presidential election. Senior officials at the US central bank including Fed Chairman Jerome Powell have in recent weeks indicated that a rate cut is coming this month, as inflation eases toward the bank’s long-term target of two percent, and the labor market continues to cool. The Fed, which has a dual mandate from the US Congress to act independently to ensure