China bans major shareholders from selling their stakes for next six months

China bans major shareholders from selling their stakes for next six months

Regulator seeks to slow stock market plunge with threat to punish those who flout ban as other markets continue to suffer

Reuters

Thursday 9 July 2015 02.27 BST / http://www.theguardian.com/world/2015/jul/09/china-bans-major-shareholders-from-selling-their-stakes-for-next-six-months

China’s securities regulator took the drastic step of banning shareholders with stakes of more than 5% from selling shares for the next six months in a bid to halt a plunge in stock prices that is starting to roil global financial markets.

The China Securities Regulatory Commission (CSRC) said on its website late on Wednesday that it would deal severely with any shareholders who violated the rule.

The prohibition is also seen applying to foreign investors who hold stakes in Shanghai- or Shenzhen-listed companies, although most of their holdings are below 5%.

The steel price in China is now cheaper per tonne than cabbage.

Evan Lucas, IG Markets strategist

China’s stock markets opened down again Thursday morning before making up some ground. Shanghai Composite Index fell more than 3% in the first half hour of trading before reversing course and rising 1.4%, while the Shenzhen Component Index opened down just over 1%.

Asian equities also extended losses as concerns over China’s market turmoil spread, while the safe-haven yen shot to a seven-week high as global risk appetite ebbed.

MSCI’s broadest index of Asia-Pacific shares outside Japan shed 0.2%, hovering near a 17-month low struck the previous day.

Japan’s Nikkei dropped 1.8%, Australian shares lost 0.3% and South Korea’s Kospi fell 0.9%.

Iron ore prices plunged to fresh six-year lows on Thursday as the contagion hurt commodity markets, with resource-heavy economies such as Australia bearing the brunt.

The spot price of the commodity used to make steel took its biggest one-day hit ever overnight, falling 10% to $44.59 a tonne, analysts said, as demand in key market China continues to shrink.

An IG Markets strategist, Evan Lucas, said: “Iron ore has just logged its worst trading day on record. The steel price in China is now cheaper per tonne than cabbage.”

Separately, major shareholders of top Chinese banks including Industrial and Commercial Bank of China (ICBC) and companies including Sinopec pledged to either maintain their holdings or increase their stakes in the listed companies.

The announcements came after China’s stock market showed signs of seizing up on Wednesday, as companies scrambled to escape the rout by having their shares suspended and the CSRC warned of “panic sentiment” gripping investors.

Despite the turmoil, China’s cabinet has said the country can reach its economic and social development targets this year. A statement from the State Council said: “Positive signs have been increasing in the last two months and structural readjustment has been accelerated.

“China’s fiscal and monetary policies have been taking effect, while both development momentum and risk prevention capabilities have been strengthened.”

The CSI300 index of the largest listed companies in Shanghai and Shenzhen closed down 6.8% on Wednesday, while the Shanghai Composite Index dropped 5.9%.

More than 30% has been knocked off the value of Chinese shares since mid-June, and for some global investors the fear that China’s market turmoil will destabilise the real economy is now a bigger risk than the crisis in Greece.

Indeed, the Obama administration is worried the stock market crash could get in the way of Beijing’s economic reform agenda.

US Treasury Secretary Jack Lew said on Wednesday: “The concern, that is a real one, is what does it mean about long-term growth in China.”

“How do Chinese policymakers respond to this, and what does it mean in terms of core conditions of the economy?“

More than 500 China-listed companies announced trading halts on the Shanghai and Shenzhen exchanges on Wednesday, taking total suspensions to about 1,300 – 45% of the market or roughly $2.4tn worth of stock – as companies sought to sit out the carnage.

Du Changchun, an analyst at Northeast Securities, said: “I’ve never seen this kind of slump before. I don’t think anyone has. Liquidity is totally depleted.”

“Originally, many wanted to hold blue chips. But since so many small caps are suspended from trading, the only way to reduce risk exposure is to sell blue chips.“

Beijing, which has struggled for more than a week to bend the market to its will, unveiled yet another battery of measures and the People’s Bank of China said it would step up support to brokerages enlisted to prop up shares.

China’s Finance Ministry and a state investor, Central Huijin Investment Ltd, pledged not to reduce their shareholdings in the country’s big four banks: ICBC, China Construction Bank , Agricultural Bank of China and Bank of China.

Sinopec Corp, Asia’s largest oil refiner, said in a filing on Wednesday that its controlling shareholder Sinopec Group had increased its stake in the listed company by buying 46 million domestic “A” shares in Shanghai, or 0.04% of the total issued share capital.

Nevertheless, world stock indexes fell overnight and the yen jumped against the dollar on concerns over China’s market mayhem and lingering worries over the future of Greece in the eurozone.

The plunge in China’s previously booming stock markets, which had more than doubled in the year to mid-June, is a major headache for the president, Xi Jinping, and China’s top leaders, who are already grappling with slowing growth.

The country’s cabinet said on Wednesday it planned to spend 250bn yuan ($40.3bn) to foster growth in areas of the economy most in need of support and would accelerate construction of big public services projects.

Beijing’s interventionist response has also raised questions about its ability to enact market liberalisation steps that are a centrepiece of its economic reform agenda.

China has orchestrated brokerages and fund managers to promise to buy billions of dollars’ worth of stocks, helped by a state-backed margin finance company that the central bank pledged on Wednesday to provide sufficient liquidity.

The securities regulator said the Securities Finance Corp had provided 260bn yuan ($41.8bn) to 21 brokerages, though that sum is only 40% of the amount of leveraged positions that investors have cut since 18 June.

Unlike other major stock markets, which are dominated by professional money managers, retail investors account for around 85% of China trade, which exacerbates volatility.

“It’s a stampede,” said Wang Feng, the chief executive officer and founder of hedge fund firm Alpha Squared Capital Co and a former Wall Street trader.

“And the problem of the market is that all the players move in the same direction, and are too emotional.”