A stock investor reacts in front of a screen showing stock market movements, in a brokerage house in Shanghai. Short-selling is the selling of stock a trader does not own, in anticipation of a future fall in prices.
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Other government rescue measures, including ordering securities brokers and company executives to shore up stocks and launching investigations against “malicious” short sellers, have also brought criticism over Beijing’s lack of determination to push forward market reforms (the rescue effort garnered a fair amount of support domestically though).
The trading halts appear to be separate from the flurry of measures rolled out by Beijing over the past week, as the country’s Communist leaders made increasingly desperate attempts to stabilize tumbling markets.
The Shanghai index has lost about 28 percent of its value since a spectacular bull run ended with a peak of 5.178.19 points on June 12. The steep decline comes after a spectacular rally that sent the Shanghai index up 150 percent in the previous 12 months despite slowing growth in the world’s second biggest economy. Then it lent money to brokers so they could buy shares.
It’s a naive strategy that shows “how immature the China market is”, said Jackson Wong, an associate director at United Simsen Securities.
The exposure that US investors have directly to Chinese stocks is limited.
“There’s zero confidence in the regulators’ ability to stop the sell-off in markets”, said Peter Donisanu, global research analyst at Wells Fargo Investment Institute.
However, it’s a temporary fix, and when they resume trading, their problems could surface again.
Hong said she turned to the rest of her portfolio and dumped half of those shares at a big loss.
Over the past year, investors poured more and more into Chinese markets.
“We are still expecting real GDP growth of between 6 and a 7.5 percent in 2015”, he said.
It’s a spectacular disaster, but the only people hurt are the Chinese investors who climbed aboard. Small investors who piled in late suffered huge losses.
The Shenzhen Composite Index, which tracks stocks on China’s second exchange, ended up 3.76 percent, or 70.90 points, to 1,955.35 on turnover of 277.6 billion yuan.
The Shanghai Composite surged after opening sharply lower. The market turmoil is rattling neighboring markets. Three-month copper on the London Metal Exchange was down 0.9 per cent at $5,581.50 a tonne.
But the worldwide Monetary Fund (IMF) said Thursday that there was no reason to lose faith in China’s economy because of the bursting stock market bubble. Prices touched $1,146.75 on Wednesday, their lowest since March 18, when the dollar was boosted by weakness in the euro on Greece and the tumble in Chinese stock markets.
“Markets had sold off on a myriad of events that are unlikely to have a meaningful impact on the business cycle”, Zirin said. “Anything you hold could be frozen at an unrealistic level and you can’t get out”.
And though these margin calls didn’t necessarily start the market downturn, they helped turn it into a self-reinforcing spiral (the more the markets fell, the more stockholders had to sell). About 1,300 Chinese companies suspended trading this week because of market weakness.
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History suggests that won’t be a cure either.
