Wave of Chinese firms halt stock trading to avoid turmoil

Chinese stocks rose to unbelievable heights this year as novice investors started pouring all their savings into the market. Beijing’s heavy-handed intervention has yet to reverse a broader selloff, now closing in on its fourth week, which has wiped out trillions in value from Chinese equities.

Maybe these optimistic projections are right as the Shanghai Composite Index closed on July 10 up 4.54% and the Shenzhen Index up 4.09%.

Before Thursday’s rebound, the market had fallen more than 30 per cent after a spectacular bull run peaked on June 12, raising fears for the wider economy.

Sun Xiwei, an analyst with CITIC Securities, said the two-day rally responded to the government moves to bail out the market and the market is expected to stabilize in about two months.

Sinopec Corp, Asia’s largest oil refiner, said in a filing on Wednesday that its controlling shareholder Sinopec Group had increased its stake in the listed company by buying 46 million A shares in Shanghai, or 0.04 percent of the total issued share capital. Before peaking on June 12, China’s stock market had zoomed up about 150 percent in a year, far in excess of what might be warranted by economic fundamentals. Indeed, forbidding share sales and suspending trading may simply serve to undermine long-term confidence in the Chinese market. Hong Kong was No. 2 with 31 deals that raised $16 billion. Employee of the Tokyo Stock Exchange look at monitors during morning trading in Tokyo Thursday, July 9, 2015.

Her shares of seafood processor Shandong Oriental Ocean Sci-Tech Co. are stuck at 14.01 yuan after she bought them for 35 yuan.

The stock market boom was also fueled by debt as people have been buying stocks with borrowed money- a practice which is called ‘margin trading’.

China’s main stock markets are in meltdown mode.

Investors especially were wary of investing in big government banks thought to be sinking under the weight of bad loans. Small investors who piled in late suffered huge losses.

The government-backed China’s Securities Finance Corporation – known as CSF – is lending billions to big Chinese brokerage firms so they can buy more stocks.

But, while the Shanghai composite was up 5.8% and shares in Shenzen rose sharply as well, the storm is likely far from over. The market turmoil is rattling neighboring markets.

Cablevision Systems rose 8 percent, the most in the S&P 500 index. However it’s unlikely to seriously affect USA investors because they have limited involvement in China’s largely hermetic markets. An estimated 80 percent of transactions on Chinese stock markets involve such investors, many of whom tend to make investment decisions based on price movements rather than on corporate performance and economic forecasts.

“Put all that together and you get this extreme volatility”.