Gov't aiming to protect banks, real economy
Despite a fresh round of support measures, mainland stock markets tumbled again on Wednesday, with nearly 900 stocks falling by the daily limit of 10 percent and the number of firms suspending trading of their shares reaching about 1,300.
The benchmark Shanghai Composite Index plunged 5.90 percent to close at 3,507.19 points as panicked investors ignored unprecedented regulatory efforts to revive the market.
"Recent market turmoil has appeared to spread, unsettling regional markets, shares in US-listed Chinese companies and even commodities prices this week," Yu Pingkang, chief economist at Huatai Securities, told the Global Times Wednesday.
In Hong Kong, the Hang Seng Index slumped 8.53 percent during trading on Wednesday before closing down 5.84 percent, the biggest fall since November 2008.
"Amid the continuous market slump, investors who bought stocks with money borrowed from brokerages or through other channels are eager to dump shares for cash, precipitating a widespread sell-off trend and thus extremely weak market confidence," Yu said.
There is now a strain on liquidity in the stock market due to the anxious sentiment and a big increase in irrational dumping of stocks, Deng Ge, a spokesman for the China Securities Regulatory Commission (CSRC), said in a statement posted on the regulator's official Weibo account on Wednesday.
In an effort to boost sentiment, China Securities Finance Corp (CSF), the State-backed institution that provides financing for margin trading to brokerages, will increase purchases of medium and small-cap stocks while continuing to ensure the stability of blue chips, according to the statement.
It also said CSF will provide sufficient liquidity support to brokerages to help stabilize the equity market.
The move was backed by the People's Bank of China (PBC), the country's central bank, which announced Wednesday on its website that it would actively assist CSF in providing sufficient liquidity through borrowing, bond issuance, collateral-backed financing and other channels so as to support the stable development of the stock market and guard against systemic and regional financial risks.
In another statement posted on Weibo during the day, the CSRC announced that CSF has offered 260 billion yuan ($41.88 billion) in credit lines to 21 brokerages after receiving liquidity support from the central bank.
In other efforts to stabilize the market, the CSRC also called for major shareholders and senior executives to purchase their companies' shares, while the China Financial Futures Exchange announced it would raise the requirements for investors to short against CSI 500 index futures.
Wednesday also saw other regulatory bodies join the market rescue efforts.
The China Insurance Regulatory Commission announced on its website Wednesday that insurers will be allowed to invest 40 percent of their total assets in blue-chip stocks, up from the current 30 percent. Insurers will also be allowed to invest 10 percent of their assets in a single blue-chip stock, up from 5 percent.
In addition, the State-owned Assets Supervision and Administration Commission on Wednesday ordered all centrally administrated State-owned enterprises not to cut holdings of their listed companies until the market stabilizes.
The pledge was followed by the Ministry of Finance, which vowed that it would not cut its holdings of listed companies. It also ordered centrally administrated financial companies not to slash their holdings.
ChiNext, the country's NASDAQ-style board for high-tech and start-up firms, ended a five-day losing streak to close Wednesday with a 0.51 percent gain, but the full effects of the latest slew of support measures have yet to be seen, Yu said.
"Fundamentally, A shares are still expensive. The benchmark Shanghai Composite Index is currently at its March level, still a relatively high level in recent years," he noted. "Risks remain as long as shares are overvalued, especially when a correction trend has formed."
But he also pointed out that there is no need to worry too much since the market turbulence hasn't spread to the real economy or to banks.
"The real purpose of the central government's rescue measures is to ensure the fund security of banks, as it is estimated that about 4 trillion yuan in the stock markets could be traced back to banks," He Jun, a senior research fellow with Beijing-based Anbound Consulting, wrote in a research note.
Measures unveiled to stabilize markets
The People's Bank of China said Wednesday that it would support securities companies to steady the stock market and will support China Securities Finance Corp (CSF), the national margin trading service provider, to get liquidity through channels such as inter-bank lending.
The China Securities Regulatory Commission's spokesman Deng Ge said Wednesday that CSF will purchase more shares in small and medium-sized listed companies to ease stock market liquidity.
The China Insurance Regulatory Commission said Wednesday that qualified insurance companies will be allowed to invest up to 10 percent of their assets in a single blue chip, up from the previous 5 percent limit, to stem the massive sell-off in the stock market.
The State-owned Assets Supervision and Administration Commission Wednesday ordered the country's centrally administered State-owned enterprises (SOEs) not to sell shares in their listed companies and encouraged SOEs to purchase more shares to stabilize prices.
The Ministry of Finance also vowed Wednesday that it will not sell the shares it owns in listed companies and ordered centrally administered financial companies not to reduce holdings in their listed arms.
