China launches all-out bid to end stocks rout

Beijing

BEIJING intensified efforts over the weekend to pull China's stock markets out of a nose-dive that is threatening the world's second-largest economy, with top brokerages pledging to buy massive amounts of shares and a report that the government has set up a market stabilisation fund.

Beijing has also suspended new share offers in an attempt to take pressure off the market after a 30 per cent plunge in three weeks, The Wall Street Journal said.

The reported suspension of initial public offers (IPOs) came a few hours after extraordinary announcements by major brokers and fund managers, which collectively pledged to invest at least US$19 billion of their own money into stocks.

China's government, regulators and financial institutions are now waging a concerted campaign to prop up the nation's stock markets, amid fears that a meltdown would rock the financial system and inflict heavy losses across an economy where annual growth is already running at a 24-year low.

Almost US$3 trillion in market value - more than the entire economic output of Brazil - has been wiped out since markets went into reverse just a few weeks ago, posing a bigger headache for many global investors than even the Greek debt crisis.

The main Shanghai Composite Index has lost nearly a third of its value since mid-June, a dramatic end to an equally breathtaking rally that saw it more than double in just seven months, fuelled by official interest- rate cuts.

The sell-off is especially worrying because the bull market had been built on a mountain of speculative loans. Some analysts suggest total margin lending, both formal and informal, could add up to around four trillion yuan (S$867 billion).

China's stock markets are dominated by retail investors, and a full-blown collapse could fuel fears of panic. State TV said on Sunday that police had detained a man who allegedly spread rumours about people jumping off buildings after the share crash.

Repeated attempts by regulators last week to stabilise markets - including an interest rate cut, a relaxation of margin-lending rules and additional bank liquidity - have failed to reassure panicky investors so far.

But Samuel Chien, a partner of Shanghai-based hedge fund BoomTrend Investment Management Co, said that he's ready to pile into blue-chip stocks this week, betting that the more aggressive weekend measures would trigger a rebound.

Brokerages have promised not to sell their new holdings as long as the Shanghai Composite Index is below 4,500 points, well above current levels of 3,684, Mr Chien noted. That new buying, if it occurs, should blunt selling pressure. But he said there are still huge risks in investing in far more speculative small stocks.

Saturday's pledge by China's top brokerages to collectively buy at least 120 billion yuan of shares would form part of Beijing's new market stabilisation fund, according to The Wall Street Journal.

Separately on Saturday, 25 Chinese mutual funds announced they, too, would put their own capital into stocks. The fund managers did not give a figure but said they would invest in their own funds, alongside their customers. Later in the day, 28 Chinese firms announced in individual statements they would suspend their own IPO plans. They did not mention any central decision to halt IPOs. REUTERS