Bloomberg Shanghai
CHINA is suspending initial public offerings (IPOs), creating a market stabilisation fund and telling investors not to panic in an effort to shore up its stock market, which has had the largest three-week drop since 1992.
According to company filings to the exchanges on Saturday evening, 10 companies will suspend IPOs on the Shanghai Stock Exchange and 18 will do the same at the Shenzen Stock Exchange.
The move was ordered at a meeting of the state council, China’s cabinet, and will be enforced by the China Securities Regulatory Commission, the financial magazine Caijing reported on its website on Saturday, without saying how it obtained the information or how long the planned freeze would last.
Calls to the press office of China’s state council went unanswered outside regular business hours.
Diversion
Halting IPOs may stem the diversion of funds away from current listings. The move came hours after major Chinese brokerage firms pledged billions of dollars to form a stock market rescue fund.
The People’s Daily, the official newspaper of China’s ruling Communist Party, urged investors to stay calm. Moves to stabilise the market took time to transmit, the paper said on Weibo, China’s Twitter-like microblogging site.
“During this process, investors should have confidence and patience, instead of losing their minds and not knowing what to do amid anxiety and panic,” it said.
The Shanghai Composite index fell 5.8 percent on Friday to 3 686.92 points, bringing the decline since its June 12 peak to 29 percent. More than $2.8 trillion (R34.4 trillion) of value has been erased from the Chinese stock market during that time, an abrupt end to the longest bull market in the nation’s history.
Stocks entered a bear market on June 29 as leveraged investors headed for the exits; China’s securities regulator that day urged investors to be rational.
The Shanghai gauge had surged more than 150 percent in the 12 months prior to June 12 as investors assessed that monetary stimulus would revive China’s economy.
Strategists at BlackRock, Credit Suisse and Bank of America all said in June that Chinese equities were in a bubble.
Probe
Funds will be returned to investors today for the new offerings that had already started the subscription process, the companies said in filings to the exchanges.
With the Shanghai gauge tumbling more than twice as fast as any other index worldwide, regulators also pledged to investigate potential market manipulation and have unveiled other measures to comfort the nation’s 90 million individual investors.
The government on Friday said that it planned to make it more expensive to speculate on stock index futures.
The Securities Association of China said on Saturday that a group of 21 brokerage firms led by Citic Securities would invest the equivalent of 15 percent of their net assets to set up a stock-market fund.The fund will invest in exchange-traded funds of highly capitalised stocks, it said.
In another development, top executives from 25 Chinese mutual funds, including China Asset Management and E Fund Management, promised to “actively” buy stock funds and hold them for at least one year, according to a statement on Asset Management Association of China’s official website.
The moves come after measures to shore up equities failed to stop margin traders from unwinding positions at a record pace. The People’s Bank of China cut interest rates last week, while margin-trading rules were eased and trading fees were cut on Wednesday. – Bloomberg