BEIJING/SHANGHAI – Beijing\’s increasingly frantic attempts to stem a regular market rout were finally rewarded as Chinese shares bounced around 6 percent on Thursday, but the costs of heavy-handed state intervention are likely to weigh on the market for a long time.
The rebound came after China\’s securities regulator, in its most drastic step yet to arrest the slump, banned shareholders with large stakes in listed firms from selling. The banking regulator said separately it might allow lenders to rollover loans backed by stocks.
The CSI300 index of the largest listed companies in Shanghai and Shenzhen raced higher to close up 6.4 percent, while the Shanghai Composite Index bounced 5.8 per cent for its biggest daily per centage gain in six years.
China overtakes Greece as the biggest threat to global marketsChina stock market freezing up as \’panic\’ selling gathers paceChina\’s economy has hit \’critical mass\’ but is still healthy
But China\’s malfunctioning stock markets remained semi-frozen, with the shares close to 1,500 listed companies worth around $2.8 trillion – roughly half the market – suspended, and many of those still trading propped up by state-directed buying.
\”The authorities can handle slowing the selling and extending market support,\” said Mark Konyn, chief executive officer at Cathay Conning Asset Management Ltd in Hong Kong.
\”However, this higher level of intervention comes at a significant cost. Such intervention locks up ownership of shares, reduces liquidity and helps to create an overhang that could plague the marketplace for years.\”
More than 25 per cent has been pushed off the value of Chinese shares since mid-June, as well as for some global investors the fear that China\’s market turmoil will destabilize the economic climate is now a larger risk compared to crisis in Greece.
\”We are inclined to believe that Beijing will escalate policy responses until they begin working,\” said economists at Credit Suisse inside a research note.
\”If market conditions don\’t stabilize, we expect a statement of \’whatever it takes\’ in the Chinese government, given that social stability is at stake and financial systemic risks are evident.\”
The United States has voiced worries the stock exchange crash might get in the way of Beijing\’s economic reform agenda.
The plunge in China\’s previously booming stock markets, which in fact had more than doubled around to mid-June, has created a major headache for President Xi Jinping and China\’s top leaders, who\’re already grappling with slowing growth.
Beijing, which in fact had made handing a \”decisive\” role towards the market a centerpiece of its economic reforms, has responded having a battery of support measures, including an interest rate cut, suspension of initial public offerings and enlisting brokerages to purchase stocks, backed by cash from the central bank.
\”The government will be able to stabilize the market because they have a lot of tools within the toolbox,\” said Christopher Moltke-Leth, head of institutional client trading at Saxo Capital Markets.
\”But it is concerning that the Chinese government doesn\’t allow market forces to work, and that\’s something China must change with time.\”
The Global Times, an important tabloid published by the Communist Party\’s official newspaper, invoked the \”national team\” in an editorial rallying support behind the authorities\’ efforts to show the market tide.
\”While you will find disaster victims everywhere in China\’s stock exchange, the other scene would be that the \’national team\’ is truly following through,\” the paper said.
The China Securities Regulatory Commission (CSRC) said on its website late on Wednesday that holders of more than 5 per cent of a company\’s stock could be barred from selling for the following six months.
The CSRC, which warned on Wednesday of \”panic sentiment\” gripping a market dominated by ordinary retail investors, said it would deal severely with any shareholders who violated the restriction.
The prohibition is unlikely to have much impact on foreign investors. No Qualified Foreign Institutional Investor (QFII), one of the main channels of foreign investment in China, holds a lot more than 5 per cent of a Shanghai or Shenzhen listed company. Foreign investors using more than a 5 percent stake in Chinese firms are strategic investors.
As the daily barrage of official measures to support the market continued, the banking and insurance regulators announced a number of moves to help ease margin lending requirements and terms on stock-backed loans.
Two Chinese development banks said they would not sell Chinese stocks, but would look to increase their holdings.
In the latest salvo against short sellers, who bet on falling prices, official news agency Xinhua said police were investigating suspected \”malicious\” selling of shares. The probe demonstrated that the authorities would \”punch back\” having a \”big fist\” against illegal activities, Xinhua said on its microblog.
Some analysts believe more government action is going to be necessary within the coming days, as investors seeking to cut their risk exposure head for the exit on the back associated with a bounce.
\”It is far from calling it a victory for that rescuers as more than half of listed information mill not exchanging the market,\” said Du Changchun, analyst at Northeast Securities in Shanghai.
? Thomson Reuters 2015