China is becoming a joke as the government tries hard to avoid losing control of the rout which continued to batter the country’s stockmarkets yesterday.
It’s in the midst of the worst fall for decades; steeper than the plunge in 2007, and all manner of tricks are being tried, without the government making sure everyone understands that nothing will stand in the way of a rout being prevented.
The government has thrown a series of major moves, from interest rate cuts, to extra loans, to government money (into margin traders), to tax changes, organised and orchestrated share buying by brokers, state funds and other fund managers – and all have failed to have an impact.
The Shanghai market fell 1.3% yesterday after being down as much as 5% during the day, while the Hong Kong market was in the green, then turned lower and closed off 1%. Tokyo and the Australian market had solid gains yesterday. The Shenzhen Component Index slumped 5.8% after falling on Monday.
The losses in the Chinese markets came after the big slide on Monday. It is getting tougher to for the Chinese government to keep a lid on the pressures roiling the market.
Yesterday morning it became known that hundreds of companies (at least 23% of all China’s 2,800 listed companies) had suspended themselves from trading on the Shanghai and Shenzhen stock markets, and a crack down on futures trading was quietly slipped with the imposition of a daily trading limit on the country’s share futures market.
News of the mass suspensions emerged in a business newspaper after the Shanghai Composite fell 5% in early trading yesterday, while the Shenzhen Composite fell 4.2%.
News of the suspensions came three days after 28 companies simultaneously announced last weekend that they would abandon their floats or IPOs.
But it was the self-suspensions of companies large and small which produced the biggest guffaws.
Amid the early market sell-off it was revealed 203 mainland-China-traded companies had announced separately that trading in their shares had been suspended.
Western media and analysts said this brought the total number of shares in trading halts over the past seven days to 651, or about 23% of the entire pool of 2,808 listed stocks.
China’s Securities Times, owned by the Shenzhen Stock Exchange, reported that many of the companies didn’t reveal the reasons behind the trading suspensions, though some cited reasons including the consideration of unspecified significant events, asset restructuring, or private share placements.
But many market observers saw the mass trading suspensions as a way for companies to protect their stocks from the current sharp drop for Chinese markets, and to protect insiders and other investors speculating in their shares from suffering losses. There seems to be some doubt that margin can be called if stocks are not trading, but are suspended.
That would help protect the investors who could have to face up to losses if the margin call was made, and protect the funders of the margin in the event the investor can’t meet the call. In turn that would help ease the selling pressure in both markets because it would stop brokers or margin issuers from selling the shares.
The more recent falls are all the more significant because in recent days policy makers have stepped up efforts to stabilise the retail-dominated market.
The central bank has, for the first time, allowed its own balance sheet to support share prices (via funding margin lending activities), 21 securities brokerages have pledged to use their own funds to buy-and-hold shares, and those IPOs were suspended to avoid the new offerings from draining funds from the market.
But the more Beijing has done, the more it seems as though it is just spinning its wheels. In fact the government is risking adding to the panic in markets as the falls go on by giving thew impression it has lost control.
"All this activity has supported a view that policymakers are in a state of panic," wrote Mark Williams at Capital Economics. "But it is too late – and probably counter-productive – to intervene [now]. The damage was done when the bubble was allowed to inflate,” the Financial Times reported.
Meanwhile western brokers say the new daily trading limit for the CSI 500 index (effective from yesterday) won’t have the desired impact because it will force investors and possible buyers out of the market.
China Financial Futures Exchange (CFFEX) said it would limit investors’ daily purchases of CSI 500 index futures to 1,200 lots for rise and fall.
And the Exchange said it would step up efforts to investigate illegal market activities.
