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China’s brokers dust off Wall Street playbook from 1929 crash as investors look to stem rout

A Chinese woman stands behind a glass panel near stock prices displayed on a board at a brokerage house in Shanghai.

On Wall Street in 1929, it had been the great banking houses of J.P. Morgan and Guaranty Trust Company.

Forget about Greece as it were – China might be a much bigger problem

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If for just a few minutes, try to forget about Greece – as many would surely wish to – and spare a concept for another possible trouble spot: China.

True, the globe\’s No. 2 growth engine isn\’t running on all cylinders. No, it isn\’t heading for the ditch, either.

But it\’s also not been keeping pace using the expansion that the world have been counting on as an anchor – while U.S. and European recoveries return to course.

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In China today, it\’s names like Citic Securities Co. and Guotai Junan Securities Co.

They\’re separated by 86 many 7,300 miles, but Chinese financiers are turning to the same playbook used by their American counterparts to fight a crash that\’s wiping out stock-market fortunes with an unprecedented scale.

Investors in China are hoping it works out a lot better this time around.

When five of America\’s most-powerful financiers met at the House of Morgan at 23 Wall Street on Oct. 24, 1929, the immediate impact of the plan to pool resources and prop up the market was encouraging: the panic of Black Thursday turned into a recovery and the New York Times lauded the bankers for placing a floor under share prices.

The boost to confidence didn\’t last for very long. The rout resumed by the following Monday, with the Dow Jones Industrial Average losing 13 percent. The gauge would go on to drop another 34 percent within the next 3 weeks, as the attached chart shows.

The support measures in China may also have a fleeting impact, based on Hao Hong, a strategist at Bocom International Holdings Co. in Hong Kong.

Too Small

A number of 21 Chinese brokerages pledged on Saturday to commit 120 billion yuan (US$19.3 billion) to a large-cap stock fund, made to stabilize shares after the biggest three-week rout within the Shanghai Composite Index since 1992. The move coincided with a flurry of other market-boosting measures, including a halt to initial public offerings and regulatory moves to discourage short sellers.

The latest tries to stem China\’s US$3.2-trillion equity rout include central bank support for margin-trade financing and stock purchases by state-run financial firms. The steps – which follow an interest-rate cut and reduced trading fees over the past week – have so far failed to convince investors that valuations are cheap enough after a 27 percent drop in the Shanghai Composite out of this year\’s high on June 12.

\”The market didn\’t buy into the measures and the downbeat mood is quite hard to change,\” Jimmy Zuo, a trader at Guosen Securities Co. in Shenzhen, said by phone.

At stake may be the fate of the stock-market that\’s lured record levels of amateur investors and grown being the world\’s second-largest away from U.S., having a market capitalization of $6.9 trillion. Further losses threaten Chinese companies\’ efforts to curb leverage with new share sales, and may erode consumer confidence amid the weakest economic growth since 1990.

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