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China anounces slew of measures in latest bid to stem stock market rout
[SHANGHAI] China's banking regulator said on Thursday it will use a series of measures to support the stability of the capital markets in a bid to stem a market plunge that has seen the country's bourses lose a third of their value in around a month.
The China Banking Regulatory Commission (CBRC) said it would permit financial institutions to renegotiate maturity terms regarding lending using stock as collateral and allow banks to ease margin requirements for wealth management and trust product clients. The regulator also said that it would encourage interbank lending between the country's margin lender and banks.
Earlier on Thursday, China's securities regulator said China Securities Finance Corp, the country's state margin lender, will use money to subscribe to mutual funds in a bid to provide "ample liquidity" to fund companies. The move aims to boost investor confidence, ensure stable operation of the mutual fund industry and stabilize the stock market, the China Securities Regulatory Commission (CSRC) said on its website.
A 32 per cent slump in the benchmark gauge has helped wipe out US$3.6 trillion of market value in Chinese stocks since June 12 and prompted regulators to introduce support measures almost every night for more than a week. Other steps have included a suspension of initial public offerings and restrictions on bearish bets via stock-index futures. Policy makers have also made loans available to securities firms to buy shares.
In perhaps the most dramatic effort to stop the selloff, local exchanges have allowed more than 1,300 companies to halt trading in their shares.
As China's record-breaking equity boom goes bust, President Xi Jinping is intervening in an attempt to prevent the rout from eroding confidence in his leadership. The moves have cast doubt on the Communist Party's pledge less than two years ago to give market forces a bigger role in the economy, which is part of its largest reform drive since the 1990s.
On Wednesday, the market regulator barred big shareholders and executives of listed companies - who have stakes exceeding 5 per cent - from selling their shares for the next six months.
While China has already ordered government-owned institutions to maintain or increase stock holdings, the CSRC directive expands the sales ban to non-state companies and potentially foreign investors who own major stakes in mainland businesses.
That move drew skepticism from foreign investors. The money managers, with combined assets of almost US$4 trillion, say the latest step to stem the country's equity rout is just another measure to meddle in the market and won't be enough to restore investors' confidence."It suggests desperation," Mark Mobius, chairman of Templeton Emerging Markets Group, said by phone. "It actually creates more fear because it shows that they've lost control."
"The measure can be effective in the short term because you are not going to allow people to trade," said Jorge Mariscal, the emerging-markets chief investment officer at UBS Wealth Management, which oversees US$1 trillion in invested assets. "But they are undermining the credibility on the soundness of the regulatory framework going forward. Things are a little extreme and counter-productive." In a sign that foreign investors expect more losses, the biggest US exchange-traded fund tracking mainland stocks tumbled a record 11 per cent in New York. Deutsche X-trackers Harvest CSI 300 China A-Shares ETF has declined 23 per cent over the past week. The Shanghai Composite lost 2 per cent at the open on Thursday.
Under current mainland rules, a single foreign investor can own as much as 10 per cent of a company's issued shares. China has allocated investment quotas of about US$138 billion through its so-called QFII and RQFII programs for foreign money managers, which include BlackRock and HSBC Global Asset Management.
International funds have gained unprecedented access to the mainland market through an exchange link with Hong Kong. Foreigners have sold a net 33.4 billion yuan (S$7.26 billion) of Shanghai shares through the link over the last three days.
"The extent to which they can apply this to foreign ownership interest remains to be seen," said Brian Jacobsen, who helps oversee US$250 billion as the chief portfolio strategist at Wells Fargo Funds Management. "They are grasping at straws to find a way to stop the selling pressure."