The Beijing government has quietly intervened and urged state companies to purchase shares but has not yet succeeded in stemming the slide. The public security ministry will look into “malicious” shorting of stocks, the Xinhua News Agency reported Thursday.
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The CSI300 index of the largest listed companies in Shanghai and Shenzhen rose 2 percent in early trading, while the Shanghai Composite Index gained 1 percent.
The impact on Chinese investors is direct, but for investors in the US, Europe and elsewhere, it’s not as simple.
There have been signs of overheating in China for a while.
For months, state media controlled by the ruling Communist Party had been cheering a months-long bull run – making Shanghai the world’s best performing market – and encouraging people to invest in stocks amid skyrocketing share prices. The many steps taken by regulators include halting IPOs, reducing fees on trading, encouraging pensions to buy stocks, cracking down on shorts and providing liquidity to margin lenders.
Rising stocks encouraged companies to raise money by issuing shares and to use the proceeds to pay down debt. Shenzhen was No. 5 with 112 deals that raised $7 billion.
“We can’t talk to foreign reporters about this topic – it’s way too sensitive”, one man wearing a baseball cap whispered in my ear.
The rule aims stabilise markets.
Japan’s Nikkei trimmed earlier losses and was last down 0.7% as Chinese stocks reversed their fall. Originally, investors in China and overseas treated the selling as a much-needed release from a market that had soared 150 percent over the past year. On Thursday, Chinese regulators banned shareholders with significant stakes in listed firms from selling. Things are so bad that roughly half of China’s 2,800 listed companies have suspended trading.
HK financial markets: An electronic screen shows the Hong Kong share index at a bank in Hong Kong, Wednesday, July 8, 2015.
Most anxiety-ridden investors have turned to purging stocks that act as a proxy or have direct exposure to China, with most of the damage happening in Hong Kong.
The Shanghai Composite Index jumped 5.76 per cent, or 202.14 points, to close at 3709.33.
Investors are clearly more focused on China.
The carnage spilled over to Hong Kong, which suffered its biggest one-day plunge since October 2008, slumping 5.84 per cent.
The U.S. has voiced worries the stock market crash could get in the way of Beijing’s economic reform agenda.
If you have a 401(k), there’s a good chance you have a few.
Other measures to stabilise the market on Thursday included state owned companies being forced to report how much they had increased their stock purchases each day. The percentages, though, are small.
It’s a heady mix when you consider the presence of short-term traders who tend to impulsively follow the market momentum regardless of its direction, according to Andreas Schotter, academic director at the Ivey School of Business at the University of Western Ontario, who has lived in China for more than a decade and is an expert in global business strategies. It’s been a popular area, with more than $13 billion flowing in this year, and Chinese stocks can make up about a quarter of these types of funds.
As their reflections glistened in the dark water, journalists and investors alike wondered about the ripple effects – financial and even political – of the volatile stock markets in the worlds’ second-largest economy.
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For the first time, though, that very visible hand of the government seems to be slow to work its usual magic – despite a series of quickly announced measures aimed at propping up the plummeting stock markets.
