Securities firm seen as part of govt effort to stabilize volatile market
Guotai Junan Securities Co will use 20 percent of its net assets on July 31 to invest in equity securities, according to a filing it sent to the Shanghai Stock Exchange on Tuesday.
Guotai Junan would also increase the scale of its stock investment business, according to the filing. Equity securities refer to stocks as well as financial products that invest primarily in stocks.
The company's decision to increase stock investment comes at a time when the mainland stock markets have been especially volatile. Major mainland stock indexes rose on Thursday and Friday after tumbling for five consecutive trading days starting from August 20.
However, the rebound didn't last. The Shanghai Composite Index slumped 1.23 percent on Tuesday after shedding 0.82 percent Monday. The Shenzhen Component Index plunged 3.67 percent after losing 2.32 percent in the previous session.
Some domestic media have linked the company's announcement with a fresh round of efforts made by the China Securities Regulatory Commission (CSRC) to stabilize the stock markets.
According to a report from the -Nanjing-based news website yangtse.com on Tuesday, the CSRC convened a meeting of 50 securities firms, and demanded that those firms continue to hand over capital to the -China Securities Finance Corp (CSF), the national margin trading service provider that has injected funds into domestic stock markets recently to relieve its liquidity strain.
According to a report in the Beijing News on Monday, as of August 27, the CSF has invested about 61 billion yuan ($9.59 billion) in 92 companies.
As the mainland stock markets slumped sharply in recent days, the CSF has lost of about 10 billion yuan in its investment.
The Global Times couldn't reach the CSF for comment on Tuesday.
On the bright side, the CSF's efforts to inject liquidity into the mainland stock markets could reverse the ongoing fall, at least in the short term, said Lu Qianjin, an international finance professor at Fudan University.
In the long term, however, the CSF's efforts will not be enough to restore investor confidence, which has dwindled amid the volatility, Lu said.
"The mainland stock markets might slump further if the volatility continues. So the CSF might take even greater losses if they continue to inject liquidity into the stock markets. It should be wary of the risks in the markets," Lu told the Global Times on Tuesday.
According to a statement of the CSRC on August 14, the CSF wouldn't "withdraw" from the markets and would continue to stabilize the markets.
