The result? Another big dive in share prices. Beijing also moved to allow insurance companies to invest a larger amount of their assets in blue chip stocks.
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Chinese stocks dived on Wednesday, as the country’s securities regulator warned investors were in the grip of “panic sentiment” and the market showed signs of freezing up as companies scrambled to escape the rout by having their shares suspended.
The Shanghai index lost another 5.9 per cent on Wednesday despite the new measures and Hong Kong’s Hang Seng index closed down 5.8 per cent after diving as much as 8.5 per cent earlier in the day.
The other worry is China’s sharemarket will spark a global sell-off at a time when investors are nervous about Greece leaving the eurozone, falling commodity prices and the prospect of higher rates in the USA.
“The slumping Chinese stock market has raised concerns of systemic risks”, ANZ Banking Group said, though it added the stock rout had yet to become a crisis.
Fears rose that mutual funds compelled to make redemptions may also have to shed their holdings, putting pressure on 60 percent of the stocks that been not been halted from trading.
The plunge in China’s previously booming stock markets, which had more than doubled in the year to mid-June, is a major headache for President Xi Jinping and China’s top leaders, who are already grappling with slowing growth in the world’s second largest economy. Even so, over the past year, the market is still up by more than 80%-a spectacular gain. The boom began after state media said previous year stocks were cheap, which led investors to believe Beijing would prevent prices from falling. Some made big profits but the slump has left many with shares worth less than they paid and hoping for a rebound so they can sell. Brokerages offer classes in trading but a culture of commentators who preach the gospel of low-risk, long-term investing has yet to develop. What’s needed are decisive steps to shore up domestic demand, not more market froth.
“With investors’ confidence towards the market shattered, it’s really hard to tell when it will start to stabilise and recover from recent falls”, Haitong Securities analyst Zhang Qi told AFP.
China’s insurance regulator said “qualified” insurers could increase their ratio of equity assets to 40 pct from 30 pct by buying blue-chip stocks.
The central bank said it will provide “ample liquidity to support stock market stability” through a state-owned company that lends to brokerages to finance share purchases, a practice known as margin lending.
The People’s Bank of China, the central bank, also pledged to support the “stable development” of the stock market by helping the China Securities Finance Co. raise funds, according to a statement on the bank’s website.
“How is it possible that so many firms are calling for trading halts in such a short period of time?” said Guodu Securities analysts Xiao Shijun. According to the newspaper China Business News, the latest percentage is the equivalent of 37 million households. The Shenzhen market, which has more tech companies and is often compared to America’s Nasdaq index, is down 41% over the same period. Hundreds more companies suspended trading before the market opened on Wednesday.
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That helped to boost prices this week of major companies such as PetroChina Ltd., Asia’s biggest oil and gas producer.
