China 'to suspend new IPOs to stop market rout'

A stock investor walks past a screen displaying share prices at a security firm in Hangzhou, east China's Zhejiang province on June 26, 2015.
A stock investor walks past a screen displaying share prices at a security firm in Hangzhou, east China's Zhejiang province on June 26, 2015. PHOTO: AFP

BEIJING • China has decided to suspend new initial public offerings (IPOs) and establish a market stabilisation fund aimed at fighting off the worst market sell-off in years, as concerns grow among the country's leadership that the malaise could be spreading to other parts of the economy, the Wall Street Journal reported yesterday, citing unidentified sources.

The decision was made at a meeting held earlier in the day involving officials from the Cabinet, the central bank, the securities regulator and other financial agencies, the report said.

It is not known how long the ban will last but the move will affect billions of dollars of new stock sales in the pipeline. Already, 28 Chinese companies planning to list said yesterday that they would suspend their IPOs.

Brokerage firms in China have also come together to set up a stock-market fund in the latest effort to stem the biggest three- week drop in the key Shanghai Composite Index since 1992.

The 21 brokers led by Citic Securities will invest the equivalent of 15 per cent of their net assets as of the end of last month, or no less than 120 billion yuan (S$26 billion) in total, the Securities Association of China said in a statement on its website yesterday.

The fund will invest in blue- chip exchange-traded funds, it said. The brokers also pledged not to reduce any proprietary investments in the equity market as long as the Shanghai Composite Index stays below 4,500, it added.

The moves come after measures to shore up equities failed to stop margin traders from unwinding positions at a record pace, having erased over US$2.8 trillion (S$3.8 trillion) of value in three weeks.

Previous steps, including an interest-rate cut by the central bank, have failed to impress investors, many of whom have been forced to unwind their leveraged bets as stocks continued to drop.

•The market rout has also affected Hong Kong, where the operator of the island's stock exchange said it will introduce new controls to rein in volatility.

Hong Kong Exchanges and Clearing last Friday said it will proceed with a proposal, unveiled in January, to introduce a so-called closing auction and other volatility curbs that would bring it in line with international peers in New York and Europe.

It said it will give the market a year to prepare for a phased implementation of the new controls, with the roll-out beginning from the middle of next year.

Chinese shares listed in Hong Kong had surged earlier this year along with a sizzling speculative rally in mainland markets, which more than doubled over the past year. But mainland shares have plunged about 30 per cent in recent weeks, pulling down Hong Kong's China Enterprises Index by more than 10 per cent.

All major stock exchanges use an auction at the end of the trading day to reduce volatility when calculating closing prices. Buy and sell orders are pooled during a five- or 10-minute period and are then matched at the best available price.

REUTERS, BLOOMBERG

A version of this article appeared in the print edition of The Sunday Times on July 05, 2015, with the headline 'China 'to suspend new IPOs to stop market rout''. Print Edition | Subscribe