Chinese authorities 'ask brokerages to boost market and buy back shares'; Stocks slump

SHANGHAI (BLOOMBERG) - China's securities regulator has asked brokerages to step up their support for share prices by contributing 100 billion yuan (S$22.2 billion) to the nation's market rescue fund and increasing stock buybacks, according to people familiar with the matter, but stocks slumped on Monday (Aug 31) as traders weighed the level of state support.

The Shanghai Composite Index slid 2.5 per cent to 3,152.16 at 10.31 am local time. Citic Securities dropped 6.9 per cent after Xinhua News Agency reported that company executives had been detained on suspicion of insider trading.

Swings in Chinese markets this month have rattled investors worldwide as they struggle to anticipate policy actions in the world's second-largest economy. Stocks rallied almost 10 per cent over Thursday and Friday on speculation that the authorities are propping up markets before President Xi Jinping takes the stage at a World War II victory parade this week.

"There is a lot of confusion about purchases of stocks by state-linked funds," said Gerry Alfonso, a sales trader at Shenwan Hongyuan Group in Shanghai. "Disclosures are very limited so it is impossible to know what they are doing with certainty."

The government revived its intervention in equities on Thursday to halt the biggest sell-off since 1996. The effort to support markets was part of a broader push to ensure nothing detracts from the parade, which the government will use to demonstrate its rising military and political might.

China's securities regulator asked brokerages to step up their support for share prices by contributing 100 billion yuan to the nation's market rescue fund and increasing stock buybacks, people familiar with the matter said.

The China Securities Regulatory Commission on Saturday gave the order at a meeting with representatives of 50 brokerages, which CSRC Chairman Xiao Gang also attended, said the sources, who asked not to be identified because the meeting has not been made public.

Four executives of Citic Securities, the country's largest brokerage, a journalist at business magazine Caijing and a staff member at the CSRC had all confessed to alleged stock-related crimes, Xinhua said.

Gauges tracking consumer, technology and healthcare companies slid more 3.8 per cent on the CSI 300 Index, which declined 2.7 per cent. Hong Kong's Hang Seng China Enterprises Index fell 1.2 per cent. The Hang Seng Index lost 0.5 per cent.

China's financial markets will be closed on Thursday and Friday for national holidays to commemorate the end of World War II. Hong Kong's markets will be shut on Thursday.

The statistics bureau is due to release an official manufacturing index for August on Tuesday. The gauge, known as the Purchasing Managers' Index, probably fell to 49.7 from 50 in July, according to the median estimate of a Bloomberg survey. A reading below 50 indicates contraction.