China rolls out emergency measures to halt slide in shares

 China rolls out emergency measures to halt slide

 in shares

Small investors have flooded into the market since the beginning of the year. Reuters

by Lisa Murray

The Chinese government has rolled out a series of emergency measures to prop up its faltering sharemarket and avoid any social unrest resulting from investment losses, after its two main exchanges lost more than a quarter of their value over the past three weeks.

These measures include a halt to a raft of planned initial public offerings, amid concern they will divert funds away from normal sharemarket investing, and the establishment of a stabilisation fund by the country's top brokers.

The Communist Party newspaper, The People's Daily, also warned people not to "lose their minds" and "bury themselves in horror and anxiety" as the "positive measures will take time to produce results.

"Twenty-eight Chinese companies, which had been approved by the regulator for IPOs, voluntarily announced late Saturday they would postpone their raisings and start refunding investors' capital this week.

Local markets have been flooded with more than 200 floats so far this year and they have been heavily oversubscribed soaking up investors' cash.

Caijing magazine reported that the move to put a freeze on IPOs was ordered by the State Council, China's cabinet, after an emergency meeting of top Party officials and financial regulators on Friday afternoon.

However, it is unclear whether this is an official freeze or how long it will be in place.

In a separate measure, 21 of the country's biggest brokers vowed to stabilise the market by setting aside 15 per cent of their net assets, or at least ¥120 billion ($26 billion), to invest in blue chip exchange-traded-funds. The initiative is being billed as a sharemarket rescue fund.The State Council also announced the establishment of a 100 billion yuan ($A21.6bn) national insurance investment fund and the Asset Management Association of China said its members would buy units in their own funds and help stabilise the market.

Since reaching a seven-year high on June 12, the benchmark Shanghai Composite Index has tumbled 27 per cent. According to Bloomberg, the market just had its worst three-week performance since 1992. The benchmark index for China's second biggest sharemarket in Shenzhen is down by 31 per cent since June 12.

Leading up to that date, both markets had surged about 150 per cent in just 12 months as investors bet the government would cut interest rates and roll out fiscal stimulus to support the slowing economy.

The rally was also fuelled by an army of new investors – 40 million new trading accounts were opened in the first five months of the year – and a surge in margin finance as people borrowed money to extend their positions.

The sharemarket's woes come at a difficult time for China, which is on track to produce its slowest annual pace of growth since 1990. The latest gross domestic product figures will be released next week. UBS is forecasting growth of 6.9 per cent in the second quarter compared to the same period a year ago, slightly below the government's official target of 7 per cent.

The government is also concerned about the fallout from the sharemarket's recent plunge given retail investors dominate daily trading in China. Millions of new investors opened accounts in recent months to try and reap the benefits of what appeared to be a state-sanctioned bull-market.

At the same time, an increasing number of newspaper reports have highlighted the trend for company executives to cash out.

The China Times reported over the weekend that in the first six months executives of listed companies sold shares worth ¥477.4 billion, more than three times the amount for the whole of 2014.

Some analysts have been comparing China's recent sharemarket plunge to the unwinding of the dot-com bubble in the US in 2000. However, Capital Analysts said the moves in China's markets are across the board and the IT sector has not been the worst hit in the latest round of selling.

In China, practically the whole market rallied to some extent, driven by expectations of policy support," Capital analysts said in a research note.

"On the way down, the IT sector hasn't been an outlier at all in China."