China stocks remained volatile on Monday, despite a series of dramatic steps by officials over the weekend created to support markets.
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But the Shanghai market only closed up 2% today, after an initial rise of 8% in early trading.
“The market may show a knee-jerk reaction to the measures but I am not sure how sustainable it will be”, Ronald Wan, Hong Kong-based chief executive officer of Partners Capital global, told Bloomberg News.
The Securities Association of China on Saturday said in a statement on its Web site that a group of 21 brokerage firms led by Citic Securities Co (中信證券) will invest the equivalent of 15 percent of their net assets as of the end of last month, or no less than 120 billion yuan (US$19.3 billion) in total, to set up a stock-market fund.
Last week, the central bank cut interest rate and eased reserve requirement to arrest the stock market sell-off, without much success.
Overnight China’s financial futures exchange said it would limit investors’ daily purchases of CSI 500 index futures to 1,200 lots for rise and fall.
Middle and low-income earners have jumped on board the express train for fear of missing out (FOMO), reportedly borrowing money from friends, relatives and parents as well as from margin lenders to splurge it all on the stock market.
As China aims for medium-high growth, continued efforts should be made to ensure a long and stable development of its capital market, said the article.
China’s securities regulator is tightening control over lending to small stock investors in an attempt to cool an overheated stock market.
There won’t be any new IPOs in the near future and the number and value of share sales will be significantly reduced once they resume, the CSRC said in a statement on its website Sunday.
“Whether the (rescue) plan succeeds depends on whether the market reacts”, said Wu Hsiao-ju, China stocks analyst with SinoPac Securities in Taipei.
The Shanghai gauge had surged more than 150 percent in the 12 months prior to June 12 as investors assessed that monetary stimulus would revive China’s economy. “The hearts of small investors have become very fragile and they should stay away from the market until it is totally stabilized”.
“Volatility in the financial markets creates uncertainty”, says Yukon Huang, ex- China country director for the World Bank, now of the Carnegie Endowment for worldwide Peace.
The last time the government intervened to suspend IPOs was in November 2012.
The market moves could well have been higher, but trading is halted once stocks move by 10% in a day. That’s the practice of buying stocks using borrowed funds. There was less discussion, however, of whether the government should be doing battle in the first place – especially given that some of the recent market frenzy has derived from risky margin trades that may be testing banks. His post quickly spread and provoked a lot of online debate, particularly among those who had invested on the stock market.
Meanwhile, a man has been detained by police in Beijing for allegedly spreading a rumour that someone had committed suicide due to the stock market slump.
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“Price-earnings ratios went off the wall and were clearly moving into bubble territory”, said Jan Dehn, head of research at Ashmore, which sold just before the market peaked.
