Probe triggers sell-off on Chinese bourses

An electronic screen at a brokerage house in Shanghai yesterday. China stocks slumped, taking their three-week tumble to nearly 30 per cent and wiping out most of this year's gains.
An electronic screen at a brokerage house in Shanghai yesterday. China stocks slumped, taking their three-week tumble to nearly 30 per cent and wiping out most of this year's gains.PHOTO: REUTERS

Securities watchdog moves to head off stock crash as it looks into possible manipulation

SHANGHAI • Chinese stocks tumbled again yesterday, taking the week's losses to more than 10 per cent, as the securities regulator said it was investigating suspected market manipulation and announced a slew of measures aimed at heading off a full-blown crash.

After a slump of nearly 30 per cent in Chinese stocks since mid-June, the China Securities Regulatory Commission (CSRC) has set up a team to look at "clues of illegal manipulation across markets".

After market close, a CSRC spokesman said China would cut initial public offerings and capital-raising and support long-term investors entering the market to help stabilise prices. It also said China's official margin lender for brokerages, which makes loans available for stock market investment, would boost its capital base to 100 billion yuan (S$21.7 billion) from 24 billion yuan to expand its business.

The central bank cut interest rates last weekend, while margin-trading rules were eased and trading fees were cut on Wednesday, but the flurry of policy moves failed to arrest the sell-off.

"For now, the mood is verging on panic, and it is extremely hard to calm a bear who is in a rage," said Mr Bernard Aw, a strategist at IG Asia in Singapore.

"Chinese brokers may still be looking at reducing their risk exposure by closing more margin debt."

The People's Bank of China (PBOC) also rolled over 250 billion yuan of medium-term loans to banks yesterday to ensure adequate liquidity in the system.

"The government must rescue the market, not with empty words, but with real silver and gold," said strategist Fu Xuejun at Huarong Securities, before the CSRC and PBOC announcements. He added that a market crash would hurt banks, consumption, companies and even trigger social instability. "It's a disaster. If it's not, what is it?"

The CSI300 index of the largest listed companies in Shanghai and Shenzhen dropped 5.4 per cent to close at 3,885.92, while the Shanghai Composite Index shed 5.8 per cent to 3,686.92 points.

For the week, the CSI300 lost 10.4 per cent and the SSEC fell 12.1 per cent. The Shanghai index fell below 4,000 points on Thursday for the first time since April, a level analysts had expected Beijing to defend.

The rout in China's highly leveraged stock market has become a major worry for global investors, who fear a meltdown could destabilise the world's second-largest economy when growth is already slowing.

Chinese stocks had more than doubled between November and mid-June, fuelled largely by retail investors using borrowed money.

"This is happening against an (economic) growth backdrop that continues to look soft, as illustrated by the flat manufacturing survey this week," noted analysts at Barclays. "With growth data still soft, China remains a key uncertainty for the global outlook."

China Daily said yesterday the CSRC was probing investors who used stock index futures to "short" the market, or bet on prices falling.

Sources told Reuters the China Financial Futures Exchange (CFFEX) had suspended 19 accounts from short-selling for a month.

After market close, CFFEX said it was introducing transaction fees on futures contracts on three indexes and strengthening the market to combat short-selling activities.

REUTERS, BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on July 04, 2015, with the headline 'Probe triggers sell-off on Chinese bourses'. Print Edition | Subscribe