Continuing plunge pushes Beijing to inject more liquidity
China's equities market has suffered the worst three-week loss since 1992 as the government keeps rolling out measures to stabilize a seemingly unstoppable slide.
The dramatic fall, wiping out $2.8 trillion in three weeks, further extended on Friday, with the benchmark Shanghai Composite Index dropping 5.7 percent, or 225.85 points, to close at 3,686.91.
To shore up the market, the China Securities Regulatory Commission told a news conference after the close on Friday that it will reduce the number of initial public offerings and the amount of funds to be raised to prevent new shares further draining liquidity.
The regulator also approved a capital injection of 76 billion yuan ($12.2 billion) into the China Securities Finance Co, a State-owned company specializing in providing margin loan services to brokerages, boosting its capitalization to 100 billion yuan and granting it greater capital power to stabilize the market.
The State Council on Friday approved the establishment of a 100 billion-yuan national insurance investment fund to invest in equities of listed and unlisted companies as well as bonds and equity funds.
The new moves came, as stocks continued their losing streak on Friday despite previous efforts, with the benchmark Shanghai index retreating by the biggest three-week decline since 1992.
The Shanghai Composite Index dived 5.8 percent to finish at 3,686.92 after swinging nearly 300 points, while the Shenzhen Component Index slumped 5.3 percent to 12,246.06.
About $2.8 trillion of market value has evaporated over the past three weeks, even as securities regulators failed to keep margin investors from unwinding positions at a record pace.
The outstanding balance of margin debts fell for a 10th day as of Thursday from a record high, according to Shanghai Stock Exchange.
"Though jettisons among margin traders may come to an end, the recent plunge in general triggered a pessimistic sentiment, which sent the markets on a downard spiral," said Yang Delong, chief strategist at China Southern Asset Management.
"Investors will come around, as regulators unleash more boosting policies," said Yang, adding that by sparing no effort to stem the plunge, State-owned financial institutions may step in with "real money" to buy shares.
Nearly 1,000 stocks sank to a daily halt on Friday, led by utility, environment and sports sectors.
Central Huijin Investment Ltd, an investment arm of the country's sovereign wealth fund, has boosted its holdings in exchange-traded funds that track the country's large blue-chip stocks, according to Chinese media reports, citing executives of fund companies.
The regulator also said that it will improve the rules to allow greater participation of overseas institutional investors under the Qualified Foreign Institutional Investor and renminbi-denominated QFII programs that have been granted an investment quota of about $300 billion.
The country's securities watchdog made late-night announcements over the past week, vowing to relax margin trading rules and investigate market manipulation.
Zhang Xiaojun said on Thursday that the CSRC will examine short-selling activities for stock-index futures for suspected manipulation.
The amended rules on margin trading, whose draft were scheduled to be on public consultation till July 11, were released on Wednesday evening "in haste for special circumstances", said the securities watchdog.
According to the amendment, brokerages and margin investors can decide through discussion on when and how much percentage of additional guaranty should be put instead of compulsory sell-off.
The previous rule stipulated that investors should make additional guaranty in two trading days if the ratio of capital they borrowed from brokerages reaches the 130 percent of a warning level.
Brokerages will be able to extend contracts with their clients as long as the maximum term is under 6 months, the amendment said.
The securities watchdog also announced it will be allowing brokerages to issue bonds and explore securitization of margin trading business to widen their funding channels.
In addition, Shanghai and Shenzhen stock exchanges announced a 30 percent cut on transaction fees to boost the markets.
Fees have been cut to 0.0487 permillage from 0.0696 permillage of the transaction volume for A-share trading, with 20 percent of the charges transferred to an investor protection fund, according to a joint statement of the two bourses.
Market volatility has increased over the past weeks as investors diverge on whether A-share's year-long bull was peaked.
The A-share market has been on a rollercoaster ride over the past six months. Highly leveragedmargin trading, which allows investors to borrow money to trade stocks, prompted a 150-percent market rally that started last year, pushing the stock index to over 5,100 points. The rally was followed by a steep decline of 30 percent in the past three weeks, largely caused by the sudden deleveraging and forced liquidation of margin accounts.
"It is the first time that Chinese investors got a sense of how powerful and destructive theleveraged trading tool can be," said Dong Dengxin, director of the Finance and Securities Institute at Wuhan University of Science and Technology.
The market may gradually stabilize, but will be volatile in the coming weeks as it takes time for the mood to go from frenetic to rational, Dong added.
