The Chinese authorities have intervened to support the country’s stock markets with the central bank pouring cash into the financial system and the securities regulator suggesting it might restrict share sales by major shareholders.
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The unexpected 130 billion yuan ($19.94 billion) injection by the central bank during open market operations on Tuesday – the largest such injection since September – followed Monday’s 7% crash triggered a circuit breaker mechanism to suspend trading for the day.
The measures helped Chinese mainland indexes recover quickly from a steep initial fall on Tuesday. The Shanghai Composite index was up 0.4% at 2.45pm AEDT after falling more than 3% at the opening.
Elsewhere in Asia Pacific it was a similar picture with markets recovering after a wobbly start. The Nikkei in Japan was up 0.4% at the lunch break while the Kospi in Korea was up nearly 1%. The exception among major bourses was Australia where ethe benchmark ASX/S&P200 was rooted at more than 1% lower.
Beijing’s intervention on Tuesday appeared timed to reassure Chinese retail investors, who are always sensitive to liquidity signals, that the bank would support the market with cash.
China’s securities regulator said it was studying rules to regulate share sales by major shareholders and senior executives in listed companies.
This would address concerns that the end of a six-month lockup on share sales by major institutional investors timed for this Friday – and scheduled to free up an estimated 1.2 trillion yuan worth of shares for sale next Monday – would result in a massive institutional evacuation from stocks.
The China securities regulatory commission also defended the functioning of the new “circuit breaker” policy that caused Chinese stock markets to suspend trade on Monday, triggering the mechanism on the very first day it came into effect.
While some analysts criticised the design of the circuit breaker, saying it inadvertently encouraged bearish sentiment, the regulator said the mechanism had helped calm markets and protect investors – although it said the mechanism needed to be further improved.
The intervention also appeared to bolster the yuan.
The People’s Bank of China set the midpoint rate at 6.5169 per dollar prior to the market open on Tuesday, weaker than the previous fix of 6.5032. It was the weakest level since April 2011.
But the yuan strengthened immediately after the opening on Tuesday and was changing hands at 6.5198 near midday, 140 pips stronger than the previous close and 0.04 percent weaker than the midpoint.
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