Jun 30, 2015 07:31 PM

Bourse Bounces Back after Gov't Unveils Supporting Measures

(Beijing) – The stock market bounced back after the government rolled out measures analysts say are aimed at shoring up investor confidence hurt by slipping share prices.

The benchmark Shanghai Composite Index closed at 4,277 points on June 30, up 5.53 percent from a day earlier. It dipped to 3,848 points in the morning, extending a nearly continuous decline that started on June 12, when the index climbed to 5,178 points, the highest level in more than seven years.

On June 28, the central bank cut interest rates and banks' reserve-requirement ratio, and the next day the government released a draft of a policy that said up to 30 percent of the country's more than 3 trillion yuan in pension funds could be invested in the stock market. Some analysts said the moves were good news for the market because they increase demand for stocks.

Leveraged purchases are widely viewed as the biggest risk to the stock market and a potential trigger for even more drastic fall in prices. The regulator is worried because forced sell-offs by investors using borrowed money could become a self-reinforcing cycle.

Sharp declines, especially on June 27 and 28, were largely driven by a chain reaction related to margin trading accounts and cannot be explained by investors losing confidence alone, Zhang Yidong, chief analyst of Everbright Securities, said.

"Investors are not looking at industries and economic fundamentals, but the conditions of margin trading accounts and leverage levels," he said. "That is why there are only sales but no buys.

"This is a stock market disaster. The market has failed."

The consequences would be severe if this went on for another week, he said, "but we trust that the government is wise enough not to let it become a crisis."

Also on June 29, the China Securities Regulatory Commission for the first time released data indicating that it had brought under control leveraged buys that had been outside its monitoring scope.

It said the investments totaled only 440 billion yuan. Earlier expert estimates said the figure could be around 2 trillion yuan.

(Rewritten by Wang Yuqian)

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