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.
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Analysts have come up with a bunch of theories to explain why the bubble burst. On the ground, this is a tragedy.
Outside the hottest areas of the market, investors are able to find plenty of decent stocks on reasonable ratings, in many cases offering attractive dividend yields.
Instead of looking for scapegoats when share prices sink, authorities should push forward on pledges to reduce the government’s role in markets, according to Teng Bingsheng, associate dean at the Cheung Kong Graduate School of Business in Beijing.
And the Chinese populace did just that.
The very visible hand of the state was involved in the systematic underpricing of IPOs and in steering margin financing towards equities for the first time. That figure ballooned to 1 trillion yuan ($161 billion) in late April 2015.
But these efforts have so far failed to convince investors. The market has risen after positive articles in state-owned media have trumpeted the merits of share ownership. Since mid-June, the main Shanghai stock index has lost 30 percent. It included the cut down in interest rates and also a relaxation in the margin lending rules. After those measures did little to lift sentiment, on July 1 the China Securities Regulatory Commission (CSRC) eliminated certain margin trading restrictions it had previously put in place to discourage speculation. And all this comes after other unorthodox measures introduced last week, such as allowing the roll-over of margin loans and letting property be used as collateral. Lai said millions of small investors were upset over their losses and the slump would complicate the government’s economic management.
The beauty of markets is that they have a mind of their own. That new buying, if it occurs, should blunt selling pressure. Hong Kong was No. 2 with 31 deals that raised $16 billion. And the rising stock prices encouraged companies to raise money by issuing shares and to use the proceeds to pay down debt.
“The panic is spreading as more investors are forced to liquidate due to leveraged funding. Whether it’s a rally or a decline, it’s policy driven, not market- oriented”.
CHINESE stockbrokers yesterday said they would pool their resources to set up a stability fund to try to stem a market rout.
The Chinese, traditionally, are hard-working folks who save the majority of their earnings. Numerous investors in Shanghai and Shenzhen today are new to shares, inexperienced and often uneducated. They looked to the Chinese Communist Party, who directed them to steer their savings into the stock market.
Twenty one Chinese securities companies, in a statement released Saturday, said they would pledge no less than 120 billion yuan ($19.33 billion) to invest in Chinese stocks. It tried, and tried some more, and the market kept doing what it wanted.
None of these measures stopped Friday’s slide.
Beijing took numerous steps this week to prop up stock prices.
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It is no coincidence that the stock market’s moves in both directions have been triggered by policy shifts.
