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China stocks fall again, despite government efforts

Source: AFP | July 28, 2015, Tuesday | Online Edition

CHINESE shares sank on Tuesday, a day after Shanghai's steepest slide in eight years, defying renewed government vows of support that analysts warned were not enough to settle nervous investors.

The fresh losses, in a volatile session, came despite an unprecedented effort by the government of the world's second largest economy to shore up prices following a month-long rout.

The recent turmoil followed a stock boom encouraged by the authorities, and their willingness to intervene in the market has raised questions over their commitment to economic reforms.

The Shanghai Composite Index fell 1.68 percent, or 62.56 points, to 3,663.00 on turnover of 685.1 billion yuan ($112.0 billion) after falling as much as 5.0 percent and rising up to 0.93 percent during the day.

The Shenzhen Composite Index, which tracks stocks on China's second exchange, ended down 2.24 percent, or 48.39 points, at 2,111.70 on turnover of 618.8 billion yuan.

Some of China's legions of small investors -- who dominate the market, unlike most exchanges worldwide, where institutions are the largest stockholders -- say they are heading for the exits.

"I sold 90 percent of my stocks since I saw several reports saying that the market is due for a correction," said Ling Lihui, a manager at a market research company, who sold last week.

Monday's 8.48 percent fall in Shanghai was the biggest drop since February 27, 2007 and sent tremors through global bourses.

Although Chinese equity markets are relatively closed to outside investors, there are worries about the health of the country's underlying economy, which is a key driver of global growth.

On Wall Street the Dow fell 0.73 percent on Monday while London, Paris and Frankfurt also lost ground on China worries.

Asian markets mostly fell again Tuesday but Hong Kong, which is closely linked to the mainland, was 0.71 percent higher in late trade.

After Monday's collapse, the China Securities Regulatory Commission (CSRC) said it would continue to "stabilise" prices.

The state-backed China Securities Finance Corp., tasked with supporting the market, would increase its share holdings, the CSRC said in a statement.

 

- 'Decline delayed' -

 

But analysts warned the comments might not be enough without concrete action.

"The government’s current intervention was not able to stop the market's slide and only delayed the decline," Castor Pang, head of research at Core-Pacific Yamaichi Hong Kong, told Bloomberg News.

Beijing stepped in after the market plunged more than 30 percent in just under four weeks from mid-June, having risen more than 150 percent in the previous 12 months.

Early efforts failed to change sentiment, until the government banned shareholders with more than five percent stakes from selling stock and launched a police crackdown on short-selling.

The China Securities Finance Corp., previously a largely unknown financial institution which helped provide financing to brokerages, has also amassed a war chest of funds to buy stock to intervene on the exchanges, media reports say.

The interventions contrast with pledges by the Communist party two years ago to allow the market to play a "decisive role" in the economy, but analysts said economic and social stability outweighed such considerations.

Experts worry the turmoil will delay China’s pledged moves to open its capital markets further to the outside world and make its yuan currency freely convertible.

The market rallied for six sessions until Friday, when an independent survey of manufacturing activity hit a 15-month low in July.

Some analysts believe the market rout has yet to become a crisis in the banking system, but warn it could have an impact on economic growth.

China's economy expanded 7.4 percent last year, the weakest pace since 1990, and slowed further to 7.0 percent in each of the first two quarters this year.

"The stock market will continue to be very volatile despite the high-profile rescue package launched by the government in the past few weeks," ANZ said in a research report on Monday.

"However, we do not regard price movement in the equity market (as) a financial crisis," it said. "The equity market rout provides room for the PBoC (People's Bank of China) to ease monetary policy."

 

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