China Places Restrictions on Significant Holdings

After years of climbing stock prices that have attracted 90 mn individual investors and increased investment from major investors, the government is concerned plummeting stock prices will further retard the country’s already slowing economic growth rate. The authorities have also relaxed rules on margin lending and cut trading fees. The benchmark Shanghai Composite Index sank 5.9 percent to finish at 3,507.19 points. The Shenzhen Component Index slumped 2.94% to close at 11,040.89 points. “I wouldn’t suggest catching the falling knife”.

The announcements come as China’s securities regulator ordered shareholders with stakes of more than 5 percent to refrain from selling in the next six months in a bid to ease pressure on its stock markets.

“Investors’ panic and irrational sell-off caused a liquidity strain on the stock market”, Deng Ge, a spokesman for the China Securities Regulatory Commission (CSRC) – the market watchdog – was quoted by state media as saying.

The economic turmoil in the world’s second-largest economy, along with the Greek debt crisis, is rattling other Asian markets. Stocks in Tokyo and Taipei ended the day down about 3 percent.

China Railway Construction Corp Ltd’s (601186.SS)(1186.HK) controlling shareholder bought 1.15 million shares in the secondary market, lifting its stake in the company to 61.34 percent, the company said in a filing on Wednesday.

“As many assets at financial institutions such as brokerages and publicly raised mutual funds are related to banks, the safety of such institutions will effectively prevent risk at the stock market from spreading to the banking system”, said Guo Yanling, senior stock analyst at Shanghai Securities.

The police are also investigating clues pointing to potentially “malicious” short-selling of Chinese shares, state news agency Xinhua said on Thursday.

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.

At the weekend, the CSRC said there would be a temporary halt to initial public offerings, which by offering near-guaranteed profits tend to drain funds from the rest of the market, hurting prices and sentiment.

“PBOC will closely monitor the market and would continue to use various (means) to support China Securities Finance to maintain the stability of the stock market to be stable and to defend the market from any systematic risks”, PBOC statement said.

China’s two oil giants were among the biggest losers in Shanghai on Wednesday.