- Title: MARKETS-CHINA/OPEN China stocks edge down as intervention brings some stability
- Date: 29th July 2015
- Summary: SHANGHAI, CHINA (JULY 29, 2015) (REUTERS) LANDMARK BUILDINGS IN SHANGHAI'S FINANCIAL DISTRICT INVESTORS INSIDE A STOCK EXCHANGE STOCK INFORMATION ON SCREEN SCREEN SHOWING STOCK INFORMATION HONG KONG, CHINA (JULY 29, 2015) (REUTERS) INDEPENDENT ECONOMIST AND MARKET STRATEGIST, GEOFF LEWIS, SITTING AND SPEAKING (SOUNDBITE) (English) INDEPENDENT ECONOMIST AND MARKET STRATEGIS
- Embargoed: 13th August 2015 13:00
- Keywords:
- Location: China
- Country: China
- Topics: General
- Reuters ID: LVA4XAAYNWDU64H86IH3MTBER2P7
- Aspect Ratio: 16:9
- Story Text: Chinese shares fell for a fourth consecutive day on Wednesday (July 29), but the declines were modest as Beijing's efforts to prop up values appeared to have brought a measure of stability to its unruly stock market.
After a dramatic plunge of more than 8 percent in Chinese stocks on Monday (July 27), China's securities regulator pledged to buy shares to calm the market and the central bank hinted at more policy easing to boost liquidity.
The Shanghai Composite Index eased 0.2 percent in subdued trading on Wednesday morning and the CSI300 index of the largest listed companies in Shanghai and Shenzhen dipped 0.4 percent.
This week's market turbulence shattered three weeks of relative calm for Chinese equities, secured through heavy government intervention to arrest a precipitous sell-off in late June and early July that had wiped as much as $4 trillion off share values.
The latest volatility has raised questions about how Beijing can extricate itself from the raft of support measures it has placed under the stock market. Some foreign investors say the heavy-handed state intervention has also set back the market liberalisation plans at the centre of China's economic reform agenda.
An independent economist and market strategist, Geoff Lewis, nevertheless, played down the impact of the move.
"It really is a market correction so far. The sharp increase in share prices never had enough time to feed into permanent income, permanent wealth. So, this up and down is not really going to cause, it's not enough by itself to cause a hard landing. Although obviously the fact that some of it was really done on margin, which is a new factor, that actually increases the downside risks," Lewis said.
He also, however, criticized mainland authorities for their intervention, saying some of the measures made no sense.
"The mainland authorities have lost some credibility. They did panic. This was a correction. They came in with a whole hotchpotch of emergency measures. So I think rumours will continue. Will they withdraw? What happens if the market falls another 10 percent? Will they come in with more support buying? Obviously it's a lot of distortion now, as the official buying is focused on the banks and the large-capped SOEs. Smaller companies are showing much more volatile movements and haven't really recovered very much. So market signals are very muddy and investors will remain nervous," he said.
After a dive in stock prices in mid June, Beijing has attempted to pump liquidity into the market while barring investors from selling.
China's central bank cut interest rates, brokerages formed stabilization funds and regulators lifted restrictions on pensions and insurers investing in stocks, an implied combined total verbal commitment of almost $800 billion.
Beijing also cracked down on "malicious" short-sellers in the futures market, froze IPOs to prevent a liquidity drain and looked the other way as around 40 percent of companies suspended trading in their shares to escape the rout.
Some Chinese investors on Wednesday called on the government to strengthen regulation.
"I think it (the movement of the stock markets) has a lot to do with the government's regulation. Frankly speaking, the Chinese stock markets are very odd and unusual, to put it in simple terms, compared to other markets in the world. So something about (the markets) is out of our control and goes off the regular track of the market development. So if the country can strengthen its regulation in this regard, perhaps (the markets) would develop healthier in the future," said 30-year-old investor Ming Xing.
Others felt the recent tumble was simply a normal market reaction and that necessary lessons had been learnt.
"I don't think it's a market disaster. It's a normal market reaction. For example, someone wants to sell himself short, which is the right thing to do, because there is no market that only goes up and never falls. It is irrational (to expect that). A market, which sees only rise without decrease, would make people even crazier. The consequence of being crazy is some people would become irrational. (Investing in stocks) should be done rationally. So it's necessary to learn lessons from market adjustment," said 47-year-old investor Wang Daoliang.
Despite a slowing economy and weakening corporate earnings, China's main stock indexes had more than doubled over the year to mid-June, before the sudden swoon that saw them tumble more than 30 percent.
Beijing's response included an interest rate cut, the suspension of initial public offerings, relaxed margin lending and collateral rules and enlisting brokerages to buy stocks, backed by cash from the central bank.
Monday's rapid sell-off, which saw China's major indexes suffer their biggest one-day loss in more than eight years, may have been partly due to authorities testing the water for withdrawing some of that emergency support.
Three people in the banking industry with direct knowledge told Reuters that the state-run margin lender had returned ahead of schedule some of the funds it borrowed from commercial banks to stabilise the stock market. - Copyright Holder: REUTERS
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