china to continue life support for its stock exchanges 1768182015
The Chinese securities regulator affirms commitment to market stabilisation
A Reuters report on Monday, which quoted three people in the banking industry with direct knowledge, said the China Securities Financial Corporation (CSFC) had started to return the funds it had borrowed from commercial banks to steady the country’s stock markets.
Rumours of the action by the CSFC were apparently rife in the markets and trading circles early Monday, said Reuters, and maybe one of the reasons that Chinese stock futures sold off sharply that day.
The Shanghai Composite index on Monday collapsed 8.5 per cent, its single biggest daily loss since 2007, with over 1,500 shares listed in Shanghai and Shenzhen falling but limited by the maximum 10 per cent. These included index heavyweights China United Network Communications Ltd (SHA:600050), Bank of Communications Co Ltd (SHA:601328) and China Petroleum & Chemical Corp (SHA:600028).
However, Zhang Xiaojun, a spokesperson with the China Securities Regulatory Commission (CSRC), said that CSFC will continue to buy stocks to stabilise the markets, quelling rumours that the institution, which is a national margin trading service provider, was suspending its measures in this direction, according to Xinhuanet. The regulator assured that it would move to “prevent systemic risk,” that the state-backed CSFC had not exited from the markets, and that it will buy more shares at “appropriate times.”
Zhang also warned that the CSRC stood ready to punish any “malicious short selling,” and that it was investigating certain large sale transactions by some individuals. According to Bloomberg, the regulator threatened to subject short sellers to “strict punishments.”
The unprecedented intervention by the Chinese authorities during the country’s stock market collapse has raised the hackles of proponents of free markets, who feel the action belied the government’s promises to implement market reforms, and that the country’s authoritarian mindset remained unchanged.
According to Bloomberg, the International Monetary Fund told the Chinese government last week that it should allow share prices to be determined by market forces and that it should eventually unwind its market stabilisation measures. The IMF is said to have made an exception in the case of a ‘major disorder.’ The Chinese have apparently assured the institution that the measures should be considered temporary.
That raises a question on the fate of the markets when Beijing eventually withdraws its steadying hand – one that will only be known when the event is actually upon us.
Meanwhile, Chinese stock markets are too distorted for investors to confidently assess its direction.
"The markets in China now are not really markets," Donald Straszheim, head of China research at New York-based Evercore ISI said last week. "They are government operations."
