China is suspending initial public offerings (IPOs), creating a market stabilization fund and telling investors not to panic in an effort to shore up its stock market, which has had the largest three-week drop since 1992.
According to company filings to the exchanges on Saturday evening, 10 companies will suspend IPOs on the Shanghai Stock Exchange and 18 will do the same at the Shenzen Stock Exchange.
The move was ordered at a meeting of the China’s State Council, its Cabinet, and will be enforced by the China Securities Regulatory Commission, the financial magazine Caijing reported on its Web site on Saturday, without saying how it obtained the information or how long the planned freeze would last.
Halting IPOs may stem the diversion of funds away from current listings. The move came hours after major Chinese brokerage firms pledged billions of dollars to form a stock market rescue fund.
The People’s Daily urged investors to stay calm. Moves to stabilize the market take time to transmit, the paper said on the Weibo microblogging site.
“During this process, investors should have confidence and patience, instead of losing their minds and not knowing what to do amid anxiety and panic,” it said.
The Shanghai Composite Index fell 5.8 percent on Friday to 3,686.92, bringing the decline since its June 12 peak to 29 percent.
More than US$2.8 trillion of value has been erased from the Chinese stock market during that time, an abrupt end to the longest bull market in the nation’s history.
Stocks entered a bear market on Monday last week as leveraged investors headed for the exits; China’s securities regulator that day urged investors to be rational.
The Shanghai gauge had surged more than 150 percent in the 12 months prior to June 12 as investors assessed that monetary stimulus would revive China’s economy. Strategists at BlackRock Inc, Credit Suisse Group AG and Bank of America all said last month that Chinese equities were in a bubble.
Funds are to be returned to investors today for the new offerings that had already started the subscription process, the companies said in filings to the exchanges.
With the Shanghai gauge tumbling more than twice as fast as any other index worldwide, regulators also pledged to investigate potential market manipulation and have unveiled other measures to comfort the nation’s 90 million individual investors.
The government on Friday said it planned to make it more expensive to speculate on stock index futures.
The Securities Association of China on Saturday said in a statement on its Web site that a group of 21 brokerage firms led by Citic Securities Co (中信證券) will invest the equivalent of 15 percent of their net assets as of the end of last month, or no less than 120 billion yuan (US$19.3 billion) in total, to set up a stock-market fund.
The fund will invest in exchange-traded funds of highly capitalized stocks, it said.
The funds should be available by 11am today, Caijing said in a separate report.
In another development, top executives from 25 Chinese mutual funds, including China Asset Management Co (華夏基金管理有限公司) and E Fund Management Co (易方達), promised to “actively” buy stock funds and hold them for at least one year, according to a statement on Asset Management Association of China’s official Web site.
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