Regarding Chinese stock investors, he said individual investors now account for about 20 per cent of market capitalisation with their source of funds being household savings and margin loans, resulting in forced sales when share prices fall sharply.
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While some analysts believe that the stock market is undergoing a much needed “correction”, China’s government has pulled out all the stops to support share prices. Both indexes have slumped some 30 percent from mid-June peaks.
The Hang Seng Index tanked 5.84 percent, or 1,458.75 points, to 23,516.56 – its lowest close since the start of January.
An electronic screen shows the Hong Kong share index at a bank in Hong Kong, Wednesday, July 8, 2015. The continual declines underscore the authorities’ difficulties in reversing the downward momentum on stock prices against a backdrop of deleveraging.
Later in the day, China says it will allow pension funds managed by local governments to invest in the stock market for the first time, potentially channelling more than 1 trillion yuan ($161 billion) into the equity market. While foreigners and domestic institutions bought shares in large companies with fairly stable businesses, working-class and middle-class families mainly bought low-priced 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 is a major headache for President Xi Jinping, who had hoped to foster a more liberal approach to markets as part of his economic reform agenda.
To insulate themselves from the meltdown, more than 500 China-listed firms announced trading halts before the market opened, bringing the total number to around 1,300, nearly half of China’s roughly 2,800 listed firms.
The country’s securities watchdog, the China Securities Regulatory Commission, announced on Wednesday that the CSF will increase purchases of stocks with small and medium-sized market value, while continually buying the larger capitalization blue-chips.
“Impacts on the global economy will be more modest, because direct financial linkages are weaker”, said Brian Jackson, an economist with IHS. I don’t think anyone has. “Liquidity is totally depleted”, the report quoted Du Changchun, an analyst at Northeast Securities, as saying. “But since so many small caps are suspended from trading, the only way to reduce risk exposure is to sell blue chips”, he added.
The heavy losses came despite a rare pledge earlier today by the People’s Bank of China that it will closely monitor stock movements and continue to use various means to support the state-backed margin-finance entity – China Securities Finance Corporation (CSF) – to protect market stability.
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Beijing has been unveiling a raft of new measures on a near-daily basis in a bid to halt the stock market plunge. It said the regulator’s attempts to shore up the market were “clearly not market-driven” and “may amplify the risk it was trying to control” and “end up hurting more” ordinary investors, by encouraging them to remain in the market for longer.
