As China’s steepest market drop in decades continues, over half of all listed companies in China had voluntarily suspended trading of their shares by midday on July 8, and about 800 others had their stocks automatically halted after reaching their daily drop limit. The benchmark Shanghai Composite Index was down 4.2% and the CSI 300 was down 4.9% in morning trading.
That leaves only a handful—just 22%, according to our calculations, of all listed stocks on the Chinese stock market still trading. Dozens of stocks in Hong Kong have also voluntarily suspended trading in the past few hours, as the spill-over from China’s market drags down Hong Kong’s Hang Seng Index:
Companies listed in China and Hong Kong can apply to stop trading ahead of the release of market-moving news—most of the companies that applied for a suspension said they had an “important project in preparation” and would make an announcement over the next five days. Most analysts believe companies are just hoping to ride out the market slump.
Investors wondering when these stocks might start trading again can take a look at Hanergy Thin Film Power, which stopped traded in Hong Kong in May after its stock started falling—and has not yet restarted.
“Greed and fear,” Michael Every, head of financial markets research at Rabobank Group told Bloomberg. “If you hadn’t been greedy you have nothing to fear now. We are heading to 2,500,” he said, referring to the Shanghai Composite Index, which was at 3582.5 at noon on July 8.
Chinese regulators and the central bank, which have already numerous measures to try to prop up the markets, are rolling out more. The China Securities Regulatory Commission (CSRC) said today it would increase purchases of shares in small and medium cap stocks, after criticism that it was only supporting large state-owned companies.
Those measures aren’t likely to stem the bleeding. After reaching a seven-year peak and the longest running bull market since the market opened in 1990, Chinese stocks have been on a nosedive and, thanks to a huge amount of borrowing to buy stocks in the run-up, may still fall further. About $3.4 trillion in value of listed companies has disappeared over the past few weeks.
Government’s stock-market stimulus
Since China’s stock markets slid by about 30% from their peak in mid-June, the government and financial firms have rushed to come up with measures to turn things around. So far, these efforts have failed to work. Today, July 8, the key Shanghai Composite Index was down 4% and over half of listed companies have suspended trading of their shares.
Here’s a complete list of the stimulus attempts that have been made public over the past week or so:
June 27: A surprise 25 basis point interest rate cut and lowering of the reserves banks need to keep when they lend to companies.
June 29: Regulators say pension funds can invest 30% of their net assets (equivalent to more than $100 billion) in equities for the first time.
July 1: China’s securities regulator relaxes rules on margin financing, or trading stocks with borrowed money.
July 3: China’s central bank extends a 250 billion RMB ($40 billion), six-month loan to state owned banks to “encourage banks to increase support” to weak parts of the economy.
July 4: 21 brokerages, led by Citic Securities, say they will invest $19.3 billion in a new blue-chip fund to stabilize the market, and vow not to sell any of their own proprietary equity holdings.
July 5: 28 firms planning IPOs on the Shanghai and Shenzhen market say they will postpone them and start refunding investors’ capital.
July 5: China’s central bank says it will inject an undisclosed amount of capital into China Securities Finance Corp (CSF), a state-owned company that makes margin loans to brokers.
July 6: Executives from mutual funds pledge to support the markets with their own capital.
July 8: China’s central bank said it would further support the margin lending provider CSF through interbank lending, bond issuance, and collateral backed financing and re-lending. China’s securities regulator said it would increase purchases of small-cap stocks.
The government and the finance industry’s full-scale push shows how important stock-market performance is to Xi Jinping’s political reputation at home and abroad. But the foreign investors China has been trying to attract may find these heavy-handed market interventions unsettling.
(Harvard Business Review)