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Chinese stock markets continue to nosedive as regulator warns of panic Chinese stock markets continue to nosedive as regulator warns of panic
(about 5 hours later)
Chinese stock markets tumbled again on Wednesday as a range of government measures aimed at preventing a further nose dive in share prices had no impact.The Shanghai Composite Index closed down 5.9%, while the Shenzhen Component Index fell to close down almost 3%. China’s stock exchange regulator has imposed severe limits on stock market selling, having earlier warned of panic in the market as a range of recent government measures failed to prevent stocks plummeting a further 6%.
Within 10 minutes of trading on Wednesday morning, a wave of listed companies across China’s two stock markets had dropped by the daily limited of 10% and had their shares automatically suspended. About 1,400 companies, or more than half of those listed in Shanghai and Shenzhen – filed for a trading halt in an attempt to prevent further losses. This suspension is likely to last “until the market is stabilised and liquidity is returned to the market”, said Chen Jiahe, chief strategic analyst with Cinda Securities. After 10 minutes of morning trading a wave of listed companies’ shares had been suspended across China’s two stock markets after they dropped by the daily limit of 10%.
China’s securities regulator said there was “panic” in the stock market with irrational selling off increasing and “leading the stock market to a situation of intense liquidity”. Related: Why is China's stock market in crisis?
As part of the latest efforts to prevent further losses, China’s state owned enterprises were ordered by the state asset regulator not to sell shares of their listed companies. The Assets Supervision and Administration Commission also encouraged them to purchase more shares in an effort to stabilise prices. The China Securities Regulatory Commission ruled that controlling shareholders and managers holding more than 5% of a company’s shares could not reduce their holdings for six months, in an attempt to maintain stability in the markets.
The People’s Bank of China said it was assisting China’s Securities Finance Corporation (CSFC), the national margin trading service provider - which helps brokers lend money to institutions in order to buy shares - to help steady the stock market. Earlier, the regulator’s statement saying there had been a surge in “irrational selling” and “panic sentiment” had done little to calm investor nerves.
It said it would do this through measures such as aiding inter-bank lending. It said it would keep a close watch on the market and continue to support the CSFC and guard against systematic and financial risks.A spokesperson for China Securities Finance Corporation also said it would purchase more shares of small-and-medium-size listed companies. It is these companies that have suffered the biggest losses. The Shanghai composite index closed down 5.9%, while the SCI 300 index of the biggest listed companies in Shanghai and Shenzhen lost 6.8%.
Meanwhile, led by losses in China, the Hong Kong Hang Seng Index closed almost 6% down on Wednesday. The rout spread to other world stock markets, with Hong Kong’s Hang Seng index closing almost 6% down, its biggest one-day drop for nearly seven years.
Chen said he is not sure whether the market will continue to fall at the same rate over the coming days. “The market is panicking and the government is trying to save it so we are having something like a conflict between the two powers and we are not sure which will be the strongest.” Since their June peak, Shanghai stocks have plunged 30% in the space of three weeks, having soared more than 150% in the previous 12 months as millions of -private investors piled in. “It’s a stampede,” said Wang Feng, a former Wall Street trader who founded the hedge fund firm Alpha Squared Capital. “And the problem of the market is that all the players move in the same direction and are too emotional.”
Christopher Balding, a professor of economics at Peking University said that while it was not possible to know exactly why so many companies had suspended trading, a large number were doing so because they had used their own stock as collateral for loans and they want to “lock in the value for the collateral”. Related: Chinese investors despair as gains wiped out in tumbling stock market
Ayako Sera, a senior market economist at Sumitomo Mitsui Trust Bank in Tokyo, said: “Today is all about China, with Greece in the background now that it’s been given a new deadline. Shanghai’s early losses were like a cliff-dive, which had a huge impact on investor sentiment.” About 1,400 companies, or more than half of those listed in Shanghai and Shenzhen – filed for a trading halt on Tuesday in an attempt to prevent further losses. Chen Jiahe, chief strategic analyst at Cinda Securities, said this suspension was likely to last until the market was stabilised and liquidity was returned to the market.
Previous measures taken over the weekend by the Chinese government in an attempt to stabilise the markets appeared to have been unsuccessful. Analysts said the falls looked set to continue. Balding said: “I don’t see it getting better. There is not going to be a turn around within the next week or two.”“It probably has a long way to go. Margin loans basically rose much faster and they are not falling nearly as fast, margin debt is not falling nearly as fast as the market is falling. What that is telling us is that there is a lot of stock that needs to be sold that hasn’t been sold yet.” Christopher Balding, professor of economics at Peking University, said it was not possible to know exactly why so many companies had suspended trading, but that a large number were doing so because they had used their own stock as collateral for loans and wanted to “lock in the value for the collateral”.
China’s stock markets had previously been among the top-performing in the world, and had hit a seven-year peak in the middle of June. The Shanghai stock market had surged more than 150% in 12 months, but it has fallen 30% over the past three weeks – including a plunge of 12% last week. Unlike most other stock markets, where most investors are institutional, in China 80% are small retail investors. Balding said this was raising concerns of “political risk” in Beijing. With large numbers of private investors losing a lot of money, the government would be worried about “people protesting on the streets”.
Unlike most other stock markets, where investors are mostly institutional investors, in China, 80% of investors are small retail investors. This is a concern for the Chinese government because it causes a “political risk”, according to Balding. The losses on the stock markets are going to cause a lot of people to lose money, leading the government to “worry about people protesting on the streets”, he said. As part of the attempt to prevent further losses, China’s state asset regulator had already ordered state-owned enterprises not to sell shares of their listed companies.
The People’s Bank of China said it was assisting the China Securities Finance Corporation (CSFC), the national margin trading service provider – which helps brokers lend money to institutions to buy shares – to help steady the market.
It said it would do this through measures such as aiding interbank lending. It would keep a close watch on the market, continue to support the CSFC and guard against systematic and financial risks.
The CSFC said it would buy more shares of small and medium-sized companies, which have suffered the biggest losses.
Chen said: “The market is panicking and the government is trying to save it, so we are having something like a conflict between the two powers and we are not sure which will be the strongest.”
Ayako Sera, a senior market economist at Sumitomo Mitsui Trust Bank in Tokyo, said: “Today is all about China, with Greece in the background … Shanghai’s early losses were like a cliff dive, which had a huge impact on investor sentiment.”
The continued sell-offs came after a surprise interest rate cut by the central bank at the end of June. Relaxations in margin trading and other “stability measures” have done little to calm investors. Analysts said they expected the falls to continue.
“I don’t see it getting better,” Balding said. “There is not going to be a turn around within the next week or two. It probably has a long way to go.”