More than 30% has been knocked off the value of Chinese shares since mid-June, and for some global investors the fear that China’s market turmoil will destabilise the real economy is now a bigger risk than the crisis in Greece. The bubble, after all, is one of the government’s own making.
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Trading on more than three-quarters of China’s stock market was motionless for much of Wednesday’s session, as authorities took further steps to stem a massive equities sell-off. This represents about 14% of the total population in China. Worse, investors see their seemingly desperate responses as worsening the panic.
The China Securities Regulatory Commission said on its website late on Wednesday that it would deal severely with any shareholders who violated the rule.
Stock prices in China have plummeted in the last month, raising concern about the outlook for the world’s second-largest economy and the spillover effect on global markets. That followed recent moves including stock purchases by state-directed funds, a freeze on initial public offerings, and an interest-rate cut and reduction to the amount of cash banks must set aside in reserve.
The Chinese markets have only recently started to open up to outside investors, so overseas players are not heavily exposed to the downturn. The CSFC, for its part, is loading up on Chinese stock to help alleviate “the problem of strained liquidity“. While foreigners and domestic institutions bought shares in large companies with fairly stable businesses, working-class and middle-class families mainly bought cheap shares in small and medium-size companies, and kept buying these shares simply because they were rising.
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. The Nikkei fell more than two per cent Wednesday to a seven-week low, while the S&P 500 was off one per cent, to 2,059.13.
Brokerages are also helping themselves by helping the market, said the employee.
With at least 1,331 companies halted on mainland exchanges and another 747 falling by the 10 percent daily limit, sellers were locked out of 72 percent of the Chinese market. But policy has mainly been aimed at shielding banks from any crash in the housing market or a slowdown in the broader economy.
“This hodge podge of measures that have been undertaken by the government are so conflicted that I think it’s causing more confusion in the markets than it is delivering therapy”, said Ron Isana, CNBC’s senior analyst and commentator.
Some 787 companies had suspended trading on the exchanges in Shanghai and the southern city of Shenzhen as of the end of trading on Tuesday, the newspaper China Business News reported. Citigroup analysts told clients the selloff has a “long way to go”. The Norwegian krone and the Australian dollar were the biggest losers, dragged down by weaker crude oil and metals prices. In addition, the China Securities Finance Corp, the country’s official margin lender for brokerages, has raised its capital base to 100 billion yuan ($16.1 billion) from 24 billion yuan, in order to stabilize markets. Beijing could make another misstep here.
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If stocks continue to fall, it could erode consumer confidence, further weighing on the economy – and spread around the globe.
