China Attempts To Prop Up Stock Market After Steep Declines; 1929 Flashback

The overheated Shanghai and Shenzhen markets have lost 29 and 32 per cent respectively over the past three weeks following 7-year highs reached on June 12. 

Instead of welcoming a much needed correction, Chinese brokerages and the Bank of China agreed to prop up the market.

Stimulus Short-Lived

The stimulus act has failed already. The South China Morning Post reports Chinese Shares Close Mixed as Stimulus Boost Short-Lived. 

 Equity markets in China finished mixed on Monday, with Shenzhen stocks losing ground and Shanghai shares clawing their way to positive territory as the weekend stimulus package launched by Beijing failed to ignite markets that have been reeling from a three week long rout.

The benchmark Shanghai Composite Index added 2.41 per cent, or 89 points, to finish at 3,775.91, after rising as much as 7.8 per cent at open.

The Shenzhen Component Index, which is comprised of more smaller and medium-sized companies, lost 1.39 per cent, or 170.29, to close at 12075.77.

The latest move by China came in a commitment from the People’s Bank of China providing liquidity for state-backed margin lender China Securities Finance Corp after a weekend meeting of the State Council, China’s cabinet, which was chaired by Premier Li Keqiang.

The move underscored the extent of the state’s exposure to a debt-driven unwind that has erased some US$2.8 trillion from mainland Chinese stock markets in a three-week long rout.

A total of 21 of the country’s largest brokerages announced plans to pool funds to buy shares in the market and some large firms such as developer China Vanke announced a 10 billion A-share buyback plan on Monday to boost their company’s shares.

Greece hit the Hong Kong share market hard as shares were battered by a sell-off on Monday sparked by the vote in the European country rejecting the bailout package of international creditors.

The city’s de facto central bank, the Hong Kong Monetary Authority, said it is ready to supply liquidity as Hong Kong stocks tumbled over 1,000 points in late afternoon trade on Monday. 

“The HKMA stands ready to provide liquidity support to the banking system should it become necessary to do so. Investors are advised to remain calm and to manage their risks prudently.”

This wiped off all gains earned since the market rally began on April 8 which at one point pushed the index up by 13 per cent in April and allowed the index to hit a seven-year high above 29,000 points.

The index is now back to the level before mainland Chinese mutual funds were allowed to invest in Hong Kong after a Beijing rule change.