It promises to be another fraught week for Chinese shares after Beijing intensified efforts over the weekend to try to shore up confidence with a frenzy of new support measures. In a little over three weeks, roughly $2.8 trillion has been wiped off Chinese shares.
Rather than calming nerves, however, Beijing’s actions have not only been mostly ineffective, but they’ve also focused attention on why China is so fearful of an equity correction.
The latest salvos to boost the market came in the form of a new stock-stabilization fund, a moratorium on new issues and a liquidity pledge from the central bank. According to a statement by the Securities Association of China, 21 brokerages will invest some 15% of their net assets in the new 120 billion yuan ($19.3 billion) fund.
This always looked too small to have much impact beyond a few hours, as stock turnover in Shanghai regularly exceeds 1 trillion yuan. The Peoples Bank of China will also provide liquidity to the state-backed margin lender, China Securities Finance, that can be used to lend to brokerages.
There are precedents for state-backed stock support schemes in Asia, although theEXPERIENCES of South Korea and Japan in this regard are not good, as markets there continued to slide.
This post was published at David Stockmans Contra Corner on July 7, 2015.
Recent Comments