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Chinese brokerage buys more shares as Beijing presses listed companies
[SHANGHAI] China's major brokerage, Guotai Junan Securities, said on Tuesday that it will increase its equity fund dedicated to supporting markets - answering Beijing's call for listed firms to bolster their backing for struggling stock markets.
Guotai Junan's board agreed to use 20 per cent of its net assets for a fund dedicated to buying shares to support the market, up from 15 per cent currently, the brokerage said in an announcement posted on the Shanghai Stock Exchange website.
The announcement follows a joint statement issued late on Monday by China's major institutions charged with supervising financial markets, which encouraged listed firms to merge, offer cash dividends, and buy back shares to support the market.
The China Securities Regulatory Commission (CSRC) recently said it would allow market forces to play a greater role in equities trading, which many interpreted as a shift from an offensive strategy trying to restart a bull market to a defensive one trying to head off a further crash, but markets crashed shortly afterwards.
Since then regulators have appeared to return to intervention, both by signalling fresh funds from pensions were on their way into the stock market, and by attempting to persuade more investors to commit funds.
This is far from the first time the CSRC has tried to encourage share buybacks by listed firms, seen as a cheap way to inspire other investors to come back to market, but the tactic has rarely produced much noticeable long-term benefit. "It would only work if investors believed the government was willing to do whatever it takes, and the problem is they've already shown that they won't," said Julian Evans Pritchard of Capital Economics in Singapore. "These measures are inadequate. It's just trying to put out a big fire with a glass of water," said Yang Hai, strategist at Kaiyuan Securities.
Guotai shares in Shanghai were rose sharply on the resumption of afternoon trade following the announcement, up around 1.6 per cent for the day, and bank stocks also rose, but wider indexes remained down around two per cent. "The policies coming out of China with regards to its equity markets are a cat's cradle of contradictions," wrote Angus Nicholson of IG in Australia. "If one was a Chinese equity investor trying to invest with the government's intended policy direction, then one would be throwing one's hands up in confusion at this point."