A package of unprecedented measures announced last weekend included provision for China’s state-backed finance company to support brokerages and fund managers in buying new stock, and the halting of the issue of new shares, or IPOs, in order to encourage more investors to buy existing stock and push up prices. The steep decline comes after a spectacular rally that sent the Shanghai index up 150 percent in the previous 12 months despite slowing growth in the world’s second biggest economy. Turnover was $206 million.
Advertisement
The scale of China’s response to the crash, which has wiped out 30 per cent of its stock markets’ value in less than a month, shows that the Communist Party is afraid of losing control. Short-selling is the selling of stock that is not actually held, in anticipation of a future fall in prices.
Police and security regulators launched a joint probe on Thursday into “vicious short-selling” on the country’s stock markets, the official Xinhua news agency reported, only giving limited details.
“It is far from calling it a victory for the rescuers as more than half of listed companies are not trading in the market”, said Du Changchun, analyst at Northeast Securities in Shanghai. “After panic selling drove the market down to the extreme, prices are now starting to move in the other direction”.
Heavyweight financial stocks rose.
With Shanghai struggling, Chinese investors pulled out of Hong Kong – where multiple mainland firms are listed – sending it plunging nearly six percent Wednesday in its worst single-day performance since November 2008, at the height of the global financial crisis.
Tokyo recovered from losses of more than three percent to end 0.60 percent higher. The Dow Jones Industrial Average finished down 1.47 per cent. About 1,300 Chinese companies suspended trading this week because of market weakness.
On Wednesday afternoon, in its most drastic step yet, the government banned major shareholders- those with more than 5 percent of a company’s shares, as well as senior executives and board members – from selling their shares for a period of six months.
Fear of capital flight from China is feared could trigger contagion across emerging markets.
The Shanghai Composite jumped 5.8 per cent, to 3709.33 points, its biggest rise since March, 2009.
“The risk from Chinese equities markets is clearly impacting commodities markets”, IG Markets strategist Evan Lucas said in a research note.
In the latest measures to support the market, China’s central bank said Thursday that it had injected 35 billion yuan (5.7 billion dollars) into the money market by buying bonds. (CSF) to help stabilise the market, reaffirming an earlier pledge.
Advertisement
In a further effort to shore up the market and prevent larger falls from forced sellers closing-out margin loans, China’s banking regulator also eased restrictions on Thursday.
