China steps up efforts to stabilise markets as confidence slumps
The China Securities Regulatory Commission unveiled a package of measures aimed at reviving the stock market and boosting investor confidence
Chinese authorities have stepped up efforts in recent days to bolster financial markets in a sign that Beijing is growing uncomfortable with the pace of declines in stocks and the yuan.
Mainland exchanges this week asked some investment funds to avoid net selling equities. Officials requested state-owned banks to escalate intervention to support the yuan, while also encouraging companies listed on the tech-heavy Star Board to buy back shares. The securities regulator said late Friday it will slash handling fees in stock transactions and study extending trading hours for equities and bonds.
The moves complemented the People's Bank of China's surprise interest rate cut this week, which was the biggest reduction since 2020, and its most forceful yuan fixing guidance ever on Friday.
So far, the measures have yet to buoy the markets. A gauge of Hong Kong-listed Chinese stocks was on course for a third-straight week of losses. The Hang Seng Index is down more than 8% this year, ranking among the biggest global losers. The gauge entered into a bear market on Friday. While the yuan eked out marginal gains against the dollar Friday morning, it has fallen more than 5% this year.
Rattled by dismal economic data, deflation fears, a weakening housing market and a crisis in the shadow lending sector, the mainland financial markets are facing the possibility of a vicious cycle of capital outflows. Foreign investors were net sellers of Chinese stocks Friday, capping a record streak of outflows.
"Debt strains from property developers and local-government financing vehicles are spreading across China's economy," Gavekal Research analyst Xiaoxi Zhang wrote in a note dated 16 August.
Other investors stress a more positive longer-term view. Focusing on China's problems may be backward-looking at this point as the time may be ripe to look for stock opportunities given declines in valuations, Joshua Crabb, head of Asia Pacific equities at Robeco Hong Kong Ltd., said in a Bloomberg Television interview.
Among other things, Crabb is expecting further stimulus to bolster consumption. Other items to watch in Beijing's toolkit include a cut in the stamp duty on stock trading, lifting of foreign investment caps and relaxation of equity trading rules.
The announcements on cutting stock handling fees and consideration to extend trading hours ``may help smooth out some of the financial market volatility and lower transaction costs, but do not address the core issues of lack of confidence and economic momentum," said Marvin Chen, a strategist at Bloomberg Intelligence.
China's securities regulator said on Friday it would cut trading costs, support share buybacks and introduce long-term capital as it unveiled a package of measures aimed at reviving the stock market and boosting investor confidence.
The China Securities Regulatory Commission (CSRC) said it was not aware if there would be a cut in stamp duty, a measure which has been hotly discussed recently but is beyond CSRC's power.
Other measures laid out by the CSRC include boosting the development of equity funds, studying plans to extend trading hours, and improving the attractiveness of listed companies.
The slew of measures come after China's top leaders vowed in late July to reinvigorate the stock market, which has been reeling amid the country's flagging economic recovery.
But Friday's measures are seen by some investors as being incremental.
The measures "will give a short-term lift to a market where investors are extremely pessimistic," said Pang Xichun, research director at Nanjing RiskHunt Investment Management Co.
"But they won't change the market fundamentals. A bull market requires genuine policies that would boost credit expansion."
Disclaimer: This article first appeared on Bloomberg, and is published by special syndication arrangement.