Chinese stocks fell yesterday, taking little comfort from a slew of support measures unleashed by Beijing in recent days, and unnerved by Chinese Premier Li Keqiang’s (李克強) failure to mention the market chaos in a statement on the economy.
Before the market opened, Li said in comments posted on a government Web site 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 about 30 percent off Chinese shares since the middle of last month.
After a brief pause in the slide on Monday, the CSI300 index of the largest listed companies in Shanghai and Shenzhen ended down 1.8 percent yesterday, while the Shanghai Composite Index lost 1.3 percent.
Photo: Reuters
The ChiNext growth board, home to some of China’s giddiest small-cap valuations, fell 5.1 percent.
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 back toward this year’s 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 (US$19 billion) of stocks, helped by China’s state-backed margin finance company, which in turn has a direct line of liquidity from the central bank.
The official Shanghai Securities News yesterday reported that China’s major insurance firms on Monday ploughed tens of billions of yuan into blue-chip exchange-traded funds (ETF) and large caps.
Unlike other major stock markets, which are dominated by professional money managers, retail investors account for about 85 percent of trading in China, which contributes to the volatility of Chinese equities.
“Where is the promised 120 billion yuan?” asked one retail investor from Hangzhou, who gave his surname as Liu. “It’s all going to blue chips. Don’t they know that retail investors are all trapped in the small caps? My stocks opened up 10 percent, but closed down the [10 percent] limit.”
Blue chips fared best as a result of the targeted buying, especially the big five banks: Industrial and Commercial Bank of China (中國工商銀行), China Construction Bank (中國建設銀行), Bank of China (中國銀行), Agricultural Bank of China (中國農業銀行) and Bank of Communications (交通銀行) were all up almost by the 10 percent limit.
Traders are increasingly nervous about the unusually large number of Chinese companies asking for their shares to be suspended from trading, fearing that many of them are looking for excuses to duck out of the market turmoil.
About one-quarter of the about 2,800 companies listed in Shanghai and Shenzhen had filed for a trading halt by the close on Monday, and yesterday the Securities Times said another 200 had announced a suspension.
Investors were also reacting to news of tightened restrictions on futures trading on a major small-cap index.
The rapid decline of China’s previously booming stock market, which had more than doubled in the year to the middle of last month, is a major headache for Chinese President Xi Jinping (習近平) and the nation’s top leaders, who are already struggling to avert a sharper economic slowdown.
Beijing’s interventionist response has also raised questions about its ability to enact the market liberalization steps that are a centerpiece of its economic reform agenda.
A surprise interest-rate cut by the central bank at the end of last month, relaxations in margin trading and other “stability measures” did little to calm investors.
Warwick Business School assistant professor of finance Lei Mao (雷毛) said government measures to support the market distorted the allocation of funds and trading behavior and could create the conditions for further sharp falls.
“Even an optimistic investor should not participate in the market for now,” he said.
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