China said to intervene in stocks after $590bn selloff | Fin24
 
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China said to intervene in stocks after $590bn selloff

Jan 05 2016 10:15
Steven Yang

Beijing - China moved to support its sinking stock market as state-controlled funds bought equities and the securities regulator signalled a selling ban on major investors will remain beyond this week’s expiration date, according to people familiar with the matter.

Government funds purchased local stocks on Tuesday after a 7% tumble in the CSI 300 Index on Monday triggered a market-wide trading halt, said the people, who asked not to be identified because the buying wasn’t publicly disclosed. The China Securities Regulatory Commission asked bourses verbally to tell listed companies that the six-month sales ban on major stockholders will remain valid beyond January 8, the people said.

Chinese policy makers, who took unprecedented measures to prop up stocks during a summer crash, are stepping in once again to combat a rout that erased $590bn of value in the worst- ever start to a year for the nation’s equity market. While the intervention may ease some selling pressure, it also undermines authorities’ pledge to give markets more sway in the world’s second-largest economy.

“The market has got some help from state funds and that will support shares in the short term,” said Wang Zheng, the Shanghai-based chief investment officer at Jingxi Investment Management. “However, in the long run, the market will need its own strength to hold up. It can’t always rely on the national team.”

China’s CSI 300 index rose 0.3% at the close, after earlier falling more than 2%. The plunge on Monday triggered the nation’s circuit breakers on their first day in effect, dealing a blow to regulatory efforts to calm one of the world’s most volatile bourses. Authorities are trying to prevent market turmoil from eroding confidence in an economy set to grow at its weakest annual pace since 1990.

The sales ban on major holders, introduced in July near the height of a $5trn rout, will stay in effect until the introduction of a new rule restricting sales, the people said. Listed companies were encouraged to issue statements saying they’re willing to halt such sales, they said.

Several firms did so this week. The controlling holder of Shenzhen-listed Zhejiang Century Huatong Group said in an exchange filing it wouldn’t sell shares on the secondary market for another year after its previous commitment expires in January. Changshu Tianyin Electromechanical, a maker of refrigerator-compressor parts, said its controlling holders won’t pare holdings over the next nine months.

International concern

The regulatory ban, announced on July 8, applied to investors with holdings exceeding 5% in a single stock, along with corporate executives and directors. The restriction drew criticism at the time from foreign investors including Templeton Emerging Markets Group and UBS Wealth Management, who saw the intervention as a step too far. Goldman Sachs Group Inc. estimated the ban kept $185bn of shares off the market.

An extension would come as a surprise to many investors. All seven strategists and fund managers surveyed by Bloomberg at the end of last month said they expected regulators to let the ban lapse this week.

“We don’t really like market intervention,” Stephen Ma, a senior portfolio manager at LGM Investments Ltd., whose parent oversees more than $254bn. “The government should have learned their lesson last summer.”

Chinese policy makers used purchases by government-linked funds to prop up shares as the CSI 300 plunged as much as 43% over the summer. State funds probably spent $236bn on equities in the three months through August, according to Goldman Sachs. The CSRC didn’t immediately respond to a faxed request for comment.

More support

China also took steps to ease borrowing costs and support the yuan on Tuesday. The central bank conducted the biggest reverse-repurchase operations since September, adding funds to the financial system to keep a lid on money-market rates. At least two major Chinese banks continuously sold dollars in the onshore market when the yuan reached 6.52 against the greenback, according to three currency traders. It rose 0.21% to 6.5198 in afternoon trading.

The CSI 300, which ended last year with a 5.6% advance, started 2016 with losses as investors anticipated an end to the sales ban and economic data signalled a continued contraction in the nation’s manufacturing sector.

Trading on Tuesday was volatile, with the index swinging between gains and losses at least 11 times.

markets  |  international markets
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