The key will be how the government manages divestment of its newly acquired stock holdings without spooking tens of millions of “mom and pop” investors, the main force in China’s markets who trade on rumour and speculation.
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Can $500 billion restore normalcy in Chinese stock market?
The volatility has prompted the government to unleash a wave of measures to stabilize markets. “In addition, the recent economic data shows it still takes time for the economy to recover from its sluggishness”.
China has tried to calm investors after stocks continued their slide on Tuesday, following a record sell-off on the previous day.
The Shanghai Composite Index closed down 345.35 points to 3,725.56 on turnover of 721.3 billion yuan ($117.9bn). Regulation and access to credit are stronger determinants of stock market value than economic fundamentals such as production and consumption levels.
Winners included small companies in technology, auto parts and other industries that caught investor attention with an early price surge and enjoyed more gains as more speculators piled in.
Monday’s losses follow declines in U.S. markets last week, when the three major indexes fell between 2 to 3 percent each.
Tuesday’s losses came despite assurances from Beijing that it will unleash more cash to provide stability to jittery share markets.
Li Pumin, a spokesman for the National Development and Reform Commission, said at a press conference that the improving Chinese economy has laid the foundation for the sound development of the stock markets.
While economists at Nomura said China’s economy was “far from being in a crisis scenario”, they said shaken investors could cut back on spending and investment, which could impede a broader recovery that had been expected in the second half of the year. Meanwhile, Hong Kong’s Hang Seng Index declined just 0.5% to 24,498. Japan’s Nikkei Stock Average was down 1%, Australia’s S&P ASX 200 fell 0.7% and South Korea’s Kospi was down 0.9%.
EUROPE and the U.S. The Shanghai Composite Index still is down more than 20 percent from its June 12 peak. The CSI300 banking subindex was down 0.8 per cent. The Fed’s two-day policy meeting ends later today with the market eyeing signals over whether September or December is the most likely date for “lift-off”. The central bank will also meet this week, but few expect it to begin raising rates. The Shanghai market fell 8.5 percent Monday, jolting equities markets around the globe.
Chinese banks have been investigating exposure to the stock market via wealth management products and loans collateralized with stocks, the China Securities Journal reported on Thursday, citing unidentified bank officials. US crude was down almost a per cent at $46.98 a barrel, near $46.91, its lowest since late March.
About 1,700 stocks fell the maximum 10 per cent allowable in any single day, including China Life Insurance, Shenhua Energy and Bank of Communications.
Singapore’s market shed almost 1 per cent, weighed down by rate hike concerns and a poor corporate earnings outlook here and in the US.
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