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Almost half of China’s firms halt trading as market dives

Hundreds more Chinese companies halted trading Wednesday as stocks continued a slide that has seen the country’s main market index decline by nearly 30 percent since mid-June. Almost half of China’s listed companies have now suspended trading.

The country’s securities regulator on Wednesday warned that investors were in the grip of “panic sentiment” after China’s main market index declined by nearly 30 percent since mid-June highs, wiping out nearly $3 trillion in market capitalisation.

More than 500 more China-listed firms announced trading suspensions on Wednesday, bringing the total number of firms who have halted trading to around 1,300 ̶ 45 percent of the market ̶ as companies sought to sit out a slide that has seen the price of some stocks plummet by more than 50 percent since last month.

Dozens with shares traded in Hong Kong also have requested suspensions.

China stocks tumbled to four-month lows on Wednesday, with the CSI300 index of the largest listed companies in Shanghai and Shenzhen falling 6.8 percent to 3,663.04 while the Shanghai Composite Index lost 5.9 percent to 3,507.19 points.

In an unprecedented sign of desperation, all of China’s three futures index products for July delivery slumped by the 10 percent daily limit, indicating that investors are extremely pessimistic on all type of stocks.

Bigger risk than Greece

For many investors, China’s market turmoil poses a greater risk to the global economy than the chance that Greece will leave the eurozone.

“A Greek default and exit from the euro shouldn’t pose a systemic crisis for the global financial system, even if does inflict pain on the Greek public and lead to some kind of emergency aid to maintain public services,” wrote Reuters columnist Clyde Russell. “Of far more importance to the rest of the world is China’s efforts to stabilise its equity markets after three weeks of declines wiped out some 30 percent of the value.”

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A surprise interest-rate cut by China’s central bank at the end of June, relaxations in margin trading and other “stability measures” have done little so far to calm investors.

Beijing unveiled yet another round of measures on Wednesday to try to stem the sell-off. The Cabinet agency that oversees China’s biggest state-owned companies said that they had been instructed not to sell shares and instead to purchase more “in order to safeguard market stability”.

The People’s Bank of China has said it would provide “ample liquidity to support stock market stability” through a government-owned company that lends to brokerages to finance share purchases, a practice known as margin lending. The securities regulator said the Securities Finance Corp had provided 260 billion yuan ($41.8 billion) to 21 brokerages.

China’s insurance regulator also announced that qualified insurers will be able to invest up to 10 percent of their assets in a single “blue chip” stock, up from the previous 5 percent.

Liquidity ‘totally depleted’

The emergency measures announced so far have been mainly aimed at shoring up the prices of shares in state-owned companies, while those of smaller and private companies have received little support. State-owned brokerages pledged over the weekend to buy blue-chip stocks or shares in state companies, which this week helped boost the prices of firms such as PetroChina Ltd., Asia’s biggest oil and gas producer. But shares in smaller companies have continued to fall.

Chinese authorities have tried to reassure investors that the price decline is normal following a boom that saw the Shanghai Composite Index soar by more than 150 percent since late 2014. On Monday, the official Communist Party newspaper, the People’s Daily, said the economy can maintain steady growth and provide “solid fundamentals” for “healthy development of capital markets”.

But such reassurances have done little to halt the declines.

And with another round of margin calls forcing leveraged investors to sell whatever shares could find a buyer, blue chips that had been supported by stabilisation funds earlier in the week also bore the brunt on Wednesday.

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

“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.”

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

“It’s uncommon to see so many shares posting consecutive daily limit falls, and the index futures swinging so wildly,” said Wang Feng, CEO and founder of hedge fund firm Alpha Squared Capital Co and a former Wall Street trader.

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

“The ripple effect from the market correction has yet to show up,” Bank of America Merrill Lynch analysts warned this week. “We expect slower growth, poorer corporate earnings, and a higher risk of a financial crisis.”


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