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Last updated: June 30, 2015 8:44 am
Beijing works to calm tumbling stock market
Gabriel Wildau in Shanghai and Josh Noble in Hong Kong
Beijing’s efforts to revive swooning share prices are beginning to bear fruit, adding weight to the view that the government will do whatever it takes to avert a collapse in the stock market.
Chinese shares have been on a wild ride over the past year, rising rapidly to a seven-year high in mid-June amid record-breaking trading volumes. But the market has since turned sharply, tumbling more than a fifth and wiping more than $2tn off the value of listed companies over the past two weeks.
Chinese authorities had already taken some steps to boost both sentiment and liquidity, including a cut to interest rates last week. But a range of extra measures aimed at calming markets appeared to reach a breakthrough on Tuesday, sending share prices soaring.
The Shanghai Composite closed the day with a 5.5 per cent gain, having been as much as 5.1 per cent lower. The Shenzhen index rose 4.8 per cent, while the small-cap ChiNext board swung from a 8.1 per cent drop in the morning session to finish 6.4 per cent higher.
The gains snap a losing streak that has wiped more than $2tn off the market capitalisation of companies listed on China’s two stock exchanges since June 12.
“It is clear the authorities are keen to promote stability and we are seeing signs the various Chinese markets are responding,” said Chris Weston, strategist at IG.
Earlier on Tuesday, the Asset Management Association of China issued a statement titled “Beautiful sunlight always comes after wind and rain”, urging members to “seize the investment opportunity” following a near-25 per cent fall in the Shanghai market over the past fortnight.
“As we pursue personal profit, we should also pay attention to others’ profits and not abandon our integrity as we grab for riches, not kill the goose that laid the golden egg,” the industry body said.
The government itself has been intervening to soothe fears of a stock market collapse. On Monday, China’s securities watchdog said an “excessively fast correction” was not healthy, while the finance and social security ministries published draft rules that would permit the state pension fund to buy stocks. Such a move could allow up to Rmb600bn ($97bn) to enter the market.
Greater freedom would allow fund managers to seek higher returns and help plug a looming pension shortfall as China’s ageing population swells the ranks of retirees. The draft rules would allow up to 30 per cent of the fund to be in stocks.
China’s stock market is widely seen as policy-driven, with investors taking cues from state media and official pronouncements about the degree of government support for the market.
During the 2007 bull run that propelled the Shanghai index to a record high, the finance ministry increased a stock transaction levy to cool the market. As the market was collapsing in 2008, the tax was cut and eventually abolished.
The China Securities Regulatory Commission has in the past restricted approvals for initial public offerings in times of market weakness to avoid diverting demand from existing shares. IPOs were frozen from October 2012 to January 2014.
The state also periodically deploys public funds to boost the market by directly buying shares.
In spite of Monday’s fall, stock exchange data show net inflows worth about Rmb95bn for four blue-chip ETFs, including those tracking the SSE 50 and CSI 300 large-cap indices. Local media speculated the inflows may have come from Central Huijin, a subsidiary of the sovereign wealth fund that holds stakes in major domestic financial institutions.
Central Huijin has frequently stepped in to buy blue-chips in periods of flagging confidence. Late last month, an unexpected share sale by Huijin helped spark a big loss.
