China's fund managers forced to use their own cash to help prop up market

Shanghai-based money manager Alexandre Werno is having to grudgingly accept one of the downsides to running a fund management business on the mainland: stumping up his own cash to help rescue the stock market.

The executive vice general manager of Fortune SG FMC, a joint venture between Baosteel Group and French bank Societe Generale, he and other senior managers had to each invest 500,000 yuan (HK$625,000) into their company funds as part of Beijing's strategy to arrest the steepest fall in equity prices in more than two decades.

"There was an internal debate but as we are in China, we had no choice," Werno said.

That money came on top of the 40 million yuan of Fortune SG capital Werno's company pledged to split between two of its blue chip tracker exchange-traded funds. As part of a recent measure designed by regulators to restore investor confidence, fund houses like Werno's committed to buying index trackers last weekend. Neither Werno nor his firm is supposed to sell these holdings for at least a year.

The only solace Werno takes from the exercise is "strong signals" from regulators that the government will keep the Shanghai Composite index above 3,500 points, only slightly below the level Werno bought in at.

Trying to call the bottom right now is like catching a falling meat cleaver. The country's two main indices tracking Shanghai- and Shenzhen-listed stocks crashed through their 50-day moving average levels late last month and kept on falling. They are now just 4 per cent above the 200-day moving average, seen as a key support level around which traders cut losses and sell.

The 14-day relative strength index, a measurement of a market's strength or weakness, has been flashing oversold for more than a week with little impact.