CSRC moves to prop up sluggish market

PUBLISHED : Friday, 16 November, 2007, 12:00am
UPDATED : Friday, 16 November, 2007, 12:00am

The mainland securities regulator, in a dramatic about-turn, is encouraging institutional buying to underpin the slumping market and restore investor confidence after the benchmark index lost 12 per cent since its mid-October peak.

The regulators had decided to inject vigour into the volatile market by allowing several closed-end funds to convert into open-ended products that could raise additional billions of yuan, analysts said.

The move reverses a temporary halt in September by the China Securities Regulatory Commission (CSRC) to approve new funds to curb excessive liquidity on the soaring market.

'This policy was a stimulus to the current sluggish market,' said Zhou Liang, mainland chief researcher at Lipper. 'It remains to be seen whether investors would be keen to buy the products amid the current lacklustre market.' The Shanghai Composite Index dropped 47.43 points, or 0.88 per cent, to 5,365.27 yesterday.

It has lost 726.79 points or 11.9 per cent since October 16 when the indicator hit an all-time high of 6,092.06.

China Asset Management on Wednesday said it received approvals to convert one of its closed-end funds, expecting to raise several billion yuan worth in extra funding.

The regulator was likely to give the green light to more closed-end funds to convert, netting an estimated 80 billion yuan, the 21st Century Business Herald reported.

Analysts said the CSRC was sending a message to investors that the correction would be short-lived and the long-term outlook of the equity market remained bullish. The move to increase fund supply is in stark contrast to CSRC chairman Shang Fulin's remarks last month, in which he warned investors of hidden risks in the high-flying stock indexes.

The newspaper said Beijing was expected to increase the quota for qualified foreign institutional investors to US$30 billion at year-end from the current US$10 billion.