CHINA moved on Tuesday to support its sinking stock market as state-controlled funds bought equities, helping global markets to stabilise after a selloff on Monday amid fears for its economy.
But the Chinese securities regulator signalled a selling ban on major investors will remain beyond this week’s expiry 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 marketwide trading halt, said the people, who asked not to be identified because the buying was not publicly disclosed.
The China Securities Regulatory Commission asked bourses to tell listed companies that the six-month sales ban on major stockholders would remain valid beyond Friday, the people said.
Chinese policy makers, who took unprecedented measures to prop up stocks during a crash last year, are stepping in once again to combat a rout that erased $590bn of value in the worst start to a year yet for the nation’s equity market.
While the stock market intervention may ease some selling pressure, it also undermines the 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 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."
European shares were higher in volatile trade, supported by a rally in mining and telecoms stocks, although worries over China persisted.
Vague market talk that the European Central Bank might do more to stimulate the eurozone’s economy after weaker than expected inflation data for last month was also cited by traders as a supporting factor.
The pan-European FTSEurofirst 300 index was up 0.4% in late afternoon trade, having fallen 2.5% on Monday.
The heavyweight German index DAX, however, remained in negative territory, down 0.04%, emphasising the fragility of market sentiment.
But China’s efforts did little to boost emerging markets.
The MSCI Emerging Markets index of stocks swung between gains and losses after falling the most in four months on Monday. The JSE all share closed in positive territory, although the rand remained under pressure.
Wall Street stocks fluctuated at the opening.
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. The 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 $5-trillion rout, will stay in effect until the introduction of a new rule restricting sales, the people said. Listed firms were encouraged to say they were 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 would not sell shares on the secondary market for another year after its previous commitment expires this month. Changshu Tianyin Electromechanical, a maker of refrigerator-compressor parts, said its controlling holders would not pare holdings over the next nine months. The regulatory ban 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 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," said Stephen Ma, a senior portfolio manager at LGM Investments. "The government should have learned their lesson last summer."
Chinese policy makers used purchases by state-linked funds to prop up shares as the CSI 300 plunged as much as 43% over the summer. State funds probably spent $236bn on equities in the three months to end-August, according to Goldman Sachs.
China also took steps to ease borrowing costs and support the yuan on Tuesday. The central bank conducted the biggest reverse-repurchase operations since September, adding funds to the financial system to keep a lid on money-market rates. At least two major Chinese banks sold dollars in the onshore market when the yuan reached 6.52 against the greenback, according to three currency traders. It rose 0.21% to 6.5198/$ in afternoon trading.
The CSI 300, which ended last year with a 5.6% advance, started this year with losses as investors anticipated an end to the sales ban and economic data signalled a continued contraction in the country’s manufacturing sector. Trading on Tuesday was volatile, with the index swinging between gains and losses at least 11 times.