CHINA MARKETS
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China stock market

Chinese shares extend losses as government props up markets; circuit breaker seen causing more trading shutdowns in days ahead

Chinese market regulator tells officials not to dump shares after sales ban expires and defends circuit breaker from criticism

PUBLISHED : Tuesday, 05 January, 2016, 9:05am
UPDATED : Tuesday, 05 January, 2016, 6:22pm

Chinese stocks extended their losses on Tuesday although an index of large-cap shares in Shanghai and Shenzhen edged up at the close as the so-called ‘national team’ of the government bought shares to stem the rout which hit equities in the previous session.

Brokers said market regulator the China Securities Regulatory Commission (CSRC) and other government agencies which they nicked named as the “National Team” directly invested into stocks to boost the market.

The CSI300 Index used as a trigger for the market’s circuit breaker closed 0.28 per cent higher at 3,478.78, having fallen 7 per cent on Monday and forcing the suspension of trading in Shanghai and Shenzhen. The other exchanges closed lower, adding to the losses seen in the previous session.

The Shanghai Composite Index settled 0.26 per cent easier at 3,287.71 while the Shenzhen Composite Index dropped 1.88 per cent to close at 2,079.77.

In Hong Kong, the benchmark Hang Seng Index followed suit by closing at 21,188.72, losing 138.4 points, or 0.65 per cent, while the H-share index tracking mainland-based companies fell 88.17 points or 0.95 per cent to conclude at 9,223.01.

“We have to wonder how far the National Team or the policy measures can continue to support the market. The economic data remains weak and the yuan keeps falling...Investors have no confidence to buy in the market,” said Louis Tse Ming-kwong, director of VC Brokerage.

The offshore yuan traded at 6.5680 to the dollar, weaker by 0.28 per cent and near its five year low. The onshore yuan was at 6.5225 to the greenback, up 0.17 per cent from the previous session.

Helping stem further losses was the announcement by CSRC on its website on Tuesday that it would consider adding restrictions on the selling of shares by major shareholders and senior executives in listed companies, after a six-month ban on such selling expires on Friday.

The looming expiration likely added to the pressure on the markets. The sales ban was imposed on July 8 to put a floor on a rout which saw markets in China lose 30 per cent of their value in a matter of weeks. The markets endured another wave of selling after the August devaluation of the yuan before recovering strongly in December.

A senior executive of a mainland listed brokerage told the South China Morning Post that officials of the Shenzhen Stock Exchange on Monday night told major shareholders and senior executives of the listed companies and brokerage houses verbally that they were not supposed to sell any shares even after the expiry date on Friday.

“This helped prevent investors from panic selling on Tuesday,” he said.

Kevin Leung, director of global investment strategy at Haitong International Securities, said the A-share markets were likely to see more trading suspensions in the next week or two with the circuit breakers in place.

“I personally think the downward pressure is very big for the mainland markets, as valuations are still high, considering the current economic data,” he said. “The H shares are much cheaper, compared to their A-share peers. And the volatilities in the Hong Kong market will be smaller, although there’s a lack of upward catalysts.”

Chinese and Hong Kong share markets saw a turbulent 2015 as stocks hit 7-year peaks in mid-June before a massive sell-off knocked US$4 trillion in value from the markets.

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