Beijing’s Stock-Plunge Response Dims Index Hopes

The Chinese stock market has been experiencing a sharp fall after a year of mad zeniths.

The Chinese stock markets have enjoyed a second day of increases following nearly a month of drastically falling prices.

Only six stocks fell on Friday, while shares of 1,452 listed companies rose, majority hitting the upward limit of 10 percent.

Since the beginning of the week about 1,300 Chinese companies – about half the stockmarket – have voluntarily suspended trading in their stocks. The objective is to bring the Communist country’s financial market practices in line with those of the rest of the world.

Before the market took a downturn on June 12, the Shanghai composite had risen by 152 per cent since July 2014 and almost 60 per cent since the beginning of the year.

The collapse followed dramatic growth where small investors, pushed Shanghai’s index up more than 150 per cent in a year.

“If market conditions do not stabilize, we expect a statement of “whatever it takes” from the Chinese government, given that social stability is at stake and financial systemic risks are evident”. Jackson Wong, an associated director at United Simsen Security, said the strategy shows “how immature the China market is”.

The impact on Chinese investors is direct, but for investors in the USA, Europe and elsewhere, it’s not as simple. However, things have turned out in such a way that the economy may suffer from the market meltdown.

2 NEWS’ Jordan Bowen spoke to local economists Thursday, who say the debacle in China, coupled with the debt crisis in Greece, could eventually have a ripple effect on people here.

While Beijing’s efforts appear to have put a floor under the stock market for now, it is still far from back to normal.

The country’s 111 major state-owned enterprises were barred from selling shares in their listed subsidiaries by the state-owned Assets Supervision and Administration Commission, which oversees them.

That was the case in the 2007-08 market boom and bust, in which China’s stock market plunged 70 percent. Many US and European companies do business in China, and a weaker Chinese economy could result in lower sales and profits for them. Small investors who piled in late suffered huge losses.

KEEPING SCORE: The Shanghai Composite in mainland China surged 6.8 percent to 3,745.86 in the afternoon session after initially opening sharply lower.

Just how bad is China’s market turmoil? After all, the prospect of being forbidden to sell shares might make investors think twice about buying shares in the future.

China’s cabinet said on Wednesday it planned to spend 250 billion yuan ($40.3 billion) to foster growth in areas of the economy most in need of support and would accelerate construction of big public services projects. “And there really isn’t”, he said.

“Our strategy is to wait until prices are so attractive that it’s time to look for further long-term opportunities”, said Mark Mobius, the chairman of the Templeton Emerging Markets Group.

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

With so many shares suspended from trading, many market watchers have suggested, partly in jest, that China completely shut its exchanges to let everyone cool off.